The fund is linked to the FTSE 100 index for a term of five years and six months. at the end of which a full capital return is provided regardless of index performance. It will also provide 114 per cent of the growth in the index. However, unlike guaranteed equity bonds which are often linked to an index in a similar way, share values will be published daily, giving the product greater transparency.
Open-ended structured products are not a new idea but Ucits III has enabled products like this to emerge due to a relaxation of the rules on how derivatives can be used in open-ended funds.
Clerical Medical has recently brought out a similar product to Standard Lifes the secure investment fund 1. This is also linked to the FTSE 100, has a term of five years and six months and will offer a full capital returns regardless of the performance of the index.
The Clerical Medical product offers a slightly lower return of 110 per cent of the rise in the index, but this does not necessarily mean investors will get a lower final return as the products are slightly different in their use of averaging.
Standard Life calculates the initial index level as an average of the first four days of the investment term, whereas Clerical Medical does not use averaging at the start of the term. If Standard Life’s averaging works to produce a higher starting level than the Clerical Medical products reading on a single day, the gap between the products in terms of growth potential over the same period could narrow.