Scottish Mutual has introduced the third 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 5.
It offers investors a choice between annual income of 8 per cent, quarterly income at 1.92 per cent or growth of 42 per cent at the end of the term. The term lasts for five years and two months.
To calculate the final returns, a starting index level is taken on taken on July 19, 2002 and is compared to daily index levels during the tracking period, between July 21, 2003 and August 8, 2007. The first 12 months of the term are omitted because Scottish Mutual believes that the index is most likely to fall below 20 per cent early on in the term.
Where the index falls by more than 20 per cent during the tracking period and does not recover by the end of the term, capital is reduced by 1 per cent for every 1 per cent fall in the index between 21 per cent and 30 per cent. Falls of 31 per or more will result in capital reduction of 2 per cent for every 1 per cent fall in the index.
The product could appeal to investors in the Scottish Mutual rising income bond, which matures in June 2002, but its appeal could extend beyond this to people looking for high income with some degree of capital protection. However, the term of five years and two months could be a drawback as no income will be paid during the last two months of the term for those choosing annual or quarterly income.