The Scottish Mutual income bond is taking a dual-index road to the
Created as a guaranteed income bond for investors who are looking
for a product that gives them a choice between an income and
growth, the bond will be linked to a basket of 30 stocks chosen from
two indices, the FTSE 100 and S&P 500.
The 30 stocks will be divided equally between the two and will be
chosen from a range of sectors, including consumer goods,
telecoms and the manufacturing industry.
Investors must have a minimum of £5,000 available for investment.
They can then choose one of three payment options, ranging from
0.67 per cent income monthly, 8.25 per cent annually, and the growth
option of 26 per cent at the end of the three-year and two month
The original capital is guaranteed to be returned as long as the
stocks do not fall by more than 30 per cent during the third year. If a
stock does fall by more than 30 per cent then the original capital will
be reduced by 1 per cent for every 1 per cent further fall in value in that
stock. There is no minimum capital return.
Most guaranteed income products, like the Scottish Widows
guaranteed income bond, measure the level of an index or a stock
over the term of the product, with the original capital being reduced if
there is a fall in value during the entire term. The Scottish Mutual
product is innovative as it only measures any fall that takes place in
the last year of the plan. However, even then it is possible for a stock
to fall by 30 per cent in value over one year. By contrast the Chase de
Vere guaranteed income bond offers the guarantee that the original
capital will be returned in spite of any falls in the FTSE 100.
The S&P 500 index went from 1,081.24 points on August
21, 1998 to 1,162.09 points on August 23, 2001, while the FTSE 100
index went from 5,465.93 points on August 21, 2001 to 5,396.5 points
on August 24, 2001.