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Product matters: Pot luck

The Barclays guaranteed FTSE account issue N6 is the Steve Davis of the investment world – dull and unsexy but dependable and potentially quite successful.

OK, I am showing my age with the analogy but Barclays does deserve credit for maintaining a consistent presence in the maturing Tessa-only Isa market via incarnations of this plan. It is also simple to understand, which is always appealing to clients.

The N6 issue offers capital protection with 115 per cent of FTSE 100 growth over a five-year term but, as usual, does not benefit from dividends.

For investors with a maturing Toisa or those wanting equity exposure via their cash Isa allowance, there is little else in the market to challenge this plan right now.

However, it is a popular misconception that index participation rates in the region of 115 per cent make up for lack of dividends. Basic calculations suggest the FTSE would need to more than double over a five-year term for plans like this to produce better overall returns than a conventional tracker that enjoys the benefit of reinvested dividend income.

The averaging of returns over the final year could be a good or bad thing depending on market movements at that time but is ultimately bad news if you are a bull.

The proposed Isa rule changes will render this type of cash Isa history as investors will be allowed to switch their cash Isas, including Toisas, into equity Isas. This is a far more elegant solution and also opens up a wider choice of protected funds for those investors who prefer this route.

Although yet to be confirmed, the new rules are likely to be introduced in April 2007. This is a good plan of its type but it is hard to recommend using it when the proposed Isa rule changes are hopefully just around the corner.

Justin Modray is head of communications at Bestinvest

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