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Product Matters

The almost totally foreseeable failure of so many precipice bonds has brought the guaranteed investment product to the fore.

Even the Govern-ment is getting in on it through National Savings. The new ninth issue offers a gross return equal to 105 per cent of any growth in the FTSE with no capping, guaranteed to repay your original investment in five years. With no fees or charges, I would love to know how much NS&I makes out of the product.

As these types of issue go, this one is better than most on offer. However, I am afraid I cannot get excited by it. Clients are seduced by the guarantee but it is only a guarantee of getting your original money back which, of course, in real terms is a significant loss.

Basing it on the FTSE 100 makes it both simplistic and easy for people to follow. The basic flaw is that I do not think the FTSE 100 is going anywhere over the next few years. I think it is far more likely to trade in a range of perhaps between 4,000 and 5,000.

Recent statistics show that buyers tying up their money for this length of time in this kind of product only have around a one in three chance of maintaining the real value of their capital and apparently as much as 50 per cent earn nothing. Worse still, any gains you do make are liable to income tax rather than capital gains tax. Bearing in mind this is probably the best product on the market in this category, do you really need to look at this or any other?

My view is to avoid it and explain to your clients about the virtues of a diversified investment portfolio.

Mark Dampier is head of research at Hargreaves Lansdown

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