Prudential has introduced its guaranteed equity bond to attract investors who are worried about falling interest rates and stockmarket volatility.
This single premium bond has a six-year term and is linked to the FTSE-100 index. It guarantees that all investors' original capital will be returned at the end of the term, no matter how the index performs during the investment period.
It also has the potential for returns of up to 15 per cent of growth in the FTSE-100 each year. During the term, the average level of the FTSE 100 is recorded annually and these results are added together to calculate the final return.
The bond can be encashed at any time, but investors who do this are no longer protected by the guarantee and could get back less than they originally invested. They would need to be prepared to tie their money up for six years to get the most out of this bond.
The full capital guarantee is a strong feature as it does not depend on the FTSE 100 remaining above a certain level at the end of the term. However, as the performance of the index is charted annually, any rise in one year could be cancelled out by a fall in another, which would impact on the final return.
The FTSE 100 index fell from 6359.57 points on May 30, 1995 to 5796.85 points on May 30, 2001.