Scottish Mutual has established the Ea5y income bond, a guaranteed equity bond that offers a choice of two income options or a growth option.
The name of the product is a play on the word easy using the number five because it has a five-year term. It offers investors a choice of annual income at 6.25 per cent gross, monthly income at 0.5125 per cent gross or growth at 31.875 per cent gross.
The bond is linked to the performance of the fifty largest European stocks that are listed on the Eurostoxx 50. Scottish Mutual says this is currently the most popular index for structured products. Returns are based on a comparison of its value between December 17 2002 and the average daily closing level between December 3 and December 14, 2007.
Investors get their income or growth plus their original capital back unless the index falls by more than 25 per cent during the term without recovering to at least its value on December 17, 2002. If the index has risen by 40 per cent or more by the end of the term, a bonus of 12.5 per cent gross is added.
However, if the index falls by more than 25 per cent without recovering to at least its starting value, investors capital will be reduced by 1 per cent for every 1 per cent fall in the index.
This product could have particular appeal to investors who need income, but the conditional capital guarantee makes it less suitable for investors for whom capital preservation is a priority.
The Eurostoxx 50 index has fallen by almost 18 per cent in the last five years, from 2603.32 points on October 9, 1997 to 2150.27 points on October 9, 2002.