This sounds too good to be true but it really is not. This is how it works.
This Ucits III fund holds a diverse portfolio of securities in addition to generating a return by undertaking a series of monthly trades on the FTSE 100.
The fund generates its returns by receiving a premium in respect of the market’s perception of the likely volatility of the FTSE 100 over the following month.
Each individual trade is one month long and is capital protected provided that the FTSE does not suffer a fall of 10 per cent or more from its opening level at any time the position is open.
If this 10 per cent is breached, the level at the expiry of the month will be compared with the opening level at the start of the month and capital will be lost on a one-for-one basis less the premium received.
As each position expires, it will be replaced with a new one based on the level of the FTSE at that date.
Over the 10 years to the end of 2007, the net monthly gain would have been 1.1 per cent. This sounds complicated but in reality the workings are very simple.
Furthermore, the gains outside Isas and pension funds are subject to capital gains tax, not income tax.
The fund is priced daily and is completely flexible and can be cashed in at any time although it is sensible to invest for the medium to longer term.
There is also an excellent option to take a monthly or annual withdrawal of up to 8 per cent a year which is taxed as capital gains.
This is certainly a fund which all IFAs should investigate. It is one of the best innovations I have seen for many years.