Skipton Building Society has brought out another tranche of its five-year guaranteed growth bond which guarantees the return of investors' original capital and 22 per cent growth.
The bond is linked to the FTSE 100, S&P 500 and Eurostoxx 50 indices for five years and investors get the minimum growth of 122 per cent whatever happens to the indices. The maximum return is 150 per cent.
To calculate the final return, the level of each index will be taken on July 5, 2002 and again on the same date every year during the term. If all three indices have increased compared with the previous year, investors will get a return of 8 per cent. If this happens each year, this gives a return of 40 per cent and 10 per cent bonus is added to bring the final return up to 50 per cent.
If all three indices do not rise during the term, or they only increase once or twice, investors will only get the minimum of 22 per cent growth plus their original capital. They will get growth of 24 per cent if the indices rise three times during the term and 32 per cent where the indices rise four times.
Guaranteed minimum growth above the original capital is a good feature for cautious investors who want to ensure they get at least a modest return after tying their money up for five years. However, getting the maximum return may be difficult as all three indices must rise every year. Some investors may also find the product too complicated.