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Prudential unveils capital protected growth plan

Prudential has introduced the capital protected growth plan, a capital-protected bond that will return investors&#39 original capital whatever happens to the FTSE 100 index during the six-year term.

The bond also has a choice of two growth options but the returns from both are based on the closing level of the FTSE 100 index on December 10, 2003 compared with an average over the last 12 months of the term.

Growth option one offers 100 per cent of the growth in the index up to maximum of 65 per cent. This means that if the FTSE 100 index grows by 66 per cent or more, investors will receive 65 per cent growth.

Growth option two provides 85 per cent of any growth in the index during the six-year term. Unlike growth option one, this is uncapped but the participation rate of 85 per cent means investors never receive all the growth in the index. The way each option works means investors with growth option two would need the index to rise by at least 77 per cent to exceed the potential returns available under growth option one.

An alternative to caps and participation rates is the cliquet structure used in Staffordshire Building Society&#39s secure capital account. This limits gains and losses to 10 per cent each year, providing a maximum return of up to 160 per cent &#45 but this could be hard to achieve.

However, investors with the Staffordshire plan receive a minimum return of 110 per cent, which is 10 per cent more than the Prudential product. This means the Staffordshire plan will be better for investors than the Prudential product if there is no growth, but an extra 10 per cent is unlikely to make a major difference to investors over a six-year term.

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