Royal London has made its debut in the guaranteed equity bond
market by offering a product that accepts monthly contributions.
The Guaranteed capital account is linked to the average performance
of four stockmarket indices - the FTSE 100, S&P 500, Nikkei 225 and
the Swiss Market Index - over a five-year term. Capital is returned in
full regardless of the performance of those indices.
Lump sum investors with a minimum of £2,500 will get 70 per cent of
the average growth in the indices. Investors who contribute at least
£20 a month will also get 70 per cent of the growth, but this will be
based on half the value of their capital at the end of the term.
Royal London says the option for monthly contributions was intended
to broaden the bond's appeal. However, if three monthly payments
are missed, the bond will be frozen and investors will get only their
original capital back at the end of the term.
Another unusual feature of the bond is that withdrawals can be made,
although this only applies to lump sum investments. The minimum
that can be withdrawn is £500 and there must be at least £1
remaining in the bond. A fee will be charged for any withdrawals
made and this could vary as it is calculated using the Bank of
England base rate.
This bond covers new ground within a well-trodden path, but its
innovations come at a price. Allowing lump sum investors to make
withdrawals for a variable fee could eat away at investors' capital, so
the capital protection from stockmarket risk could be undermined.
Also, regular investors receive growth on half the amount they invest,
which could be seen as an additional cap on growth.