The minimum return option provides the greater of 23 per cent of the original investment after five years or 50 per cent of the growth in the index. To calculate the returns, the closing level of the index is recorded every six months and any gain or loss in each period will be capped at 5 per cent. This is known as a cliquet structure.
At the end of the term, the gain or loss from each period is added together to produce a final figure. If this growth is above 23 per cent, investors will receive the equivalent growth, up to a maximum of 50 per cent. The maximum return will be achieved if the index increases by at least 5 per cent for all 10 periods. If the final figure of growth is below 23 per cent, or there has been no growth in the index, investors will receive the minimum 23 per cent return.
Under the dual asset option, the original capital is split equally between a one-year fixed rate savings account and a five-year guaranteed equity bond. The savings account portion will accrue 8 per cent interest for one year, after which the capital will be returned to the investor. The other half will remain invested in the guaranteed equity bond element, so that the original capital will be returned along with 50 per cent of the growth in the index after five years. Index growth will be subject to averaging over the final six months of the term.
Some investors will prefer the minimum return option as this ensures they will come away with something beyond the return of their original capital, even though the cliquet structure may make it difficult to achieve the maximum growth. Other investors may prefer 8 per cent on half their money after one year, as it means they will not need to tie all their money up for five years. However, this plan could be seen as two products in one and could potentially confuse investors trying to understand how each option works.