Scottish Life International has established the second issue of its protected bonus bond.
The bond is linked to three stockmarket indices - the FTSE 100, S&P 500 and Eurostoxx 50. Investors' original capital is returned, along with minimum growth of 18 per cent, whatever happens to those indices during the term of six years and two months.
The maximum growth potential is 54 per cent, which is made up of six annual payments of 9 per cent. To calculate the returns, the closing levels of the stockmarket indices are measured in the 10 days leading up to May 5, 2003 and the lowest level is recorded for each index. These are compared to the levels of each index on an annual basis and a 9 per cent bonus will be paid provided each index remains at, or above, its starting level each year.
This product could appeal to offshore investors who may be put off with-profits in the light of another round of bonus cuts and who are willing to tie their money up for a longer term than similar products from Britannia International and Irish life International.
However, linking the product to three stockmarkets is a riskier strategy than linking to one index such as the FTSE 100 index. A fall in any of the indices within each year during the term would affect the 9 per cent bonus and it may be difficult to achieve the maximum level of growth that is offered. This is the price investors pay for the security of a guarantee which extends beyond the return of the original capital.