NDF Administration has introduced the second issue of the NDF higher income & growth plan, a guaranteed equity bond that is linked to the 10 largest stocks in the FTSE 100 index. These companies are Astrazeneca, Barclays, BP, Glaxo Wellcome, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland, Shell and Vodafone.
Investors have three options annual income of 9 per cent, monthly income of 0.7 per cent or growth of 50 per cent. These rates are the same as offered by the first issue of the bond.
The return of the original capital plus income or growth is guaranteed if the final level of each stock is up to 20 per cent lower than the starting level. However, the return for income investors is less the income they have already taken.
If one stock is more than 20 per cent below its initial value, investors get 85 per cent of their capital. Two stocks below 85 per cent of their starting value gives a return of 65 per cent of the original capital. Three or more stocks more than 20 per cent below their initial starting levels gives annual income investors a return of 55 per cent of the original capital and monthly income investors 58 per cent of the original capital.
Eurolifes investment plus plan is a similar bond that offers higher income and growth than NDFs bond. It provides annual income of 10 per cent, monthly income of 0.8 per cent and a choice of 45 per cent growth or 65 per cent growth. Unlike NDFs plan, it is linked to three indices, which spreads the risk across more stocks than NDFs plan. Even if one stock falls by 21 per cent, this will impact on the overall return with NDF and this could make it unattractive for some investors.