I am only in favour of structured products linked to one index, preferably the FTSE 100, as in the Prudential income & growth plan.
In the current climate, the five-year term of this plan is preferable to three-year products as this gives more time to iron out the peaks and troughs.
The income level at 8 per cent a year or 0.62 per cent a month and growth of 42 per cent on maturity are slightly lower than rivals but this is compensated by some of the advantages on offer – headline rate should not be the only consideration.
For instance, Prudential will also pay interest from the date that it receives a client's investment to the investing date at a rate comparable with bank deposit accounts – not a lot but better than nothing. The interest is added to the initial investment at the time the funds are invested.
While the level of income or growth is fixed, return of capital is not guaranteed.
This means that an investor opting for income would, effectively, be using his own capital to support the level of income if the index underperformed so much that it breached the safety net.
The first barrier of this safety net is if the FTSE falls by below 75 per cent of its level at January 13, 2003 during its “observation period” from January 13, 2004 to November 28, 2007. This is not particularly generous and means the second barrier (falling below 60 per cent) comes in at a fairly early stage. If either is breached, there would be loss of capital. A breach of the second barrier could mean 100 per cent loss of capital.
Colin Jackson is a director of Baronworth Investment Services