Scottish Life International has introduced an offshore guaranteed equity bond that returns a minimum level of growth plus the original capital whatever happens to the stockmarkets to which it is linked.
The bond is only available to investors in Scottish life International's secure investment portfolio and protected investment management service. There are sterling denominated and US dollar versions of the bond, which offer slightly different returns over a term of five years and two months.
The sterling denominated version provides minimum growth of 10.2 per cent and maximum growth of 51 per cent. The US dollar denominated version has a minimum growth return of 10 per cent and maximum growth potential of 50 per cent. Returns depend on the performance of three stockmarket indices, the FTSE 100, Eurostoxx 50 and S&P 500, which represent the UK, Europe and the US.
With the sterling version, a 10.2 per cent bonus is added each year providing the three indices do not fall below the starting levels during the last 10 working days of each year. The US version adds 10 per cent a year on the same basis. The starting levels are the level of each index on July 29 each year. Investors are guaranteed the minimum return even if the indices fall below their starting levels during the last 10 working days of every year.
The bond may suit cautious long-term investors who are looking for an alternative to with-profits bonds in the light of recent cuts to bonus rates. However, it may be difficult to achieve the maximum potential return, as each index must close higher than the starting level for a narrow 10-day period every year.