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Scottish Widows sets its sights on the FTSE 100

Scottish Widows has introduced the guaranteed investment bond.

The product is a guaranteed equity bond that is aimed at cautious investors who are looking for a product that offers growth and capital protection over the medium term.

The bond will be linked to the FTSE 100 index for its six-year term. At the end of every six-month period the performance of the index will be measured to see how far it has moved. The maximum amount it can rise or fall is 7.5 per cent.

At the end of the term all of the percentage rises will be added together and then the percentage falls will be deducted, to give a final level. If the final result is positive, the investor will get their original capital back plus the total amount of any rise. If the index falls, then investors will get their original investment back. Over a six-year period the FTSE 100 index went from 3,541.64 points on November 9, 1995 to 5,244.20 points on November 9, 2001.

The capital will be protected during the six-year term by being invested in zero coupon bonds.

The guaranteed investment bond is similar to the FTSE 100 growth protected investment bond from Merrill Lynch. This also follows the FTSE 100 index, with the original capital returned regardless of any falls. However, the Merrill Lynch product invests over a five-year period and also only promises 10 per cent of any growth in the index. The Scottish Widows bond has a longer term and does not set a ceiling for the maximum return.

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