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Scottish Life International serves up with-profits alternative

Scottish life International is marketing its protected bonus bond as an alternative to with-profits bonds.

The protected bonus bond is a guaranteed equity bond that is linked to the FTSE 100, Eurostoxx 50 and S&P 500 indices for a term of six years and two months. Investors are guaranteed the return of their original capital and minimum growth of 18 per cent, regardless of how the stockmarket indices perform during the term.

To calculate the returns, the closing level of each index is recorded on January 20 each year and compared with the lowest index level in the 10 days before the bond’s anniversary. If all indices stay the same or rise each year, investors get a 9 per cent return. Over the term, this gives a maximum growth potential of 54 per cent.

Some investors may be moving away from with-profits bonds because bonus rates have been reduced in recent months following poor stockmarket performance. This bond could be seen as an alternative to with-profits as it is a halfway house between savings accounts and direct investment in equities. Its main attraction is that it returns investors’ capital and provides at least 18 per cent above this whatever happens to global stockmarkets over the next six years and two months.

The long-term view it offers, as opposed to the three-year term of Royal Bank of Scotland International’s bonus builder account, also means investors are not exposed to short-term stockmarket volatility.

However, one drawback with the Scottish life International product is that as the returns are based on the movement of each index every year during the term, the structure of the bond includes two months where investors are not getting any growth.

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