Scottish Mutual has introduced the fourth issue of its income and growth plan, a guaranteed equity bond that is linked to the Eurostoxx 50 index through a Dublin-based company called Quaich Investments 8.
The plan has two options. The balanced income and growth option offers annual income of 8 per cent, quarterly income at 1.9 per cent or growth of 25 per cent at the end of the three-year term. The steady income and growth option offers annual income of 6 per cent, quarterly income of 1.45 per cent or growth of 18.5 per cent at the end of the term.
To determine whether capital is returned in full, the Eurostocc 50 index is monitored between June 6, 2003 and November 22, 2005. Capital will be returned provided the index does not fall by more than 25 per cent during this period. If it does, capital will still be returned if the index recovers between November 23 and December 6, 2005.
However, if these safety nets fail, capital will be reduced. For the balanced income and growth option, investors will lose 1.75 per cent of capital for every 1 per cent fall in the index. The steady income and growth option, which offers a lower rate of income and growth, has a lower rate of capital erosion. If the safety nets fail, capital will be reduced by 1 per cent for every 1 per cent fall in the index.
The bond could appeal to a range of investors, particularly those seeking income, who want some degree of capital protection. However, those who take the higher returns offered by the balanced option risk losing capital at a higher rate than investors who choose the steady option.