Scottish Life International has designed its protected with bonus bond as an alternative to with-profits bonds.
The protected with bonus bond is aimed at cautious investors who are looking for a steady rate of growth and who do not want to invest in with-profits bonds. It could also be suitable for building society investors who are seeking higher returns.
The spread across five international stockmarkets – the FTSE 100, S&P 500, EuroStoxx 50, Nikkei 225 and Nasdaq 100 is fairly wide and the geographical diversity can work in its favour. Some bonds rely on the performance of a single index, which concentrates the risk in one area.
Unlike some bonds, the protected with bonus bond pays bonuses even if there is no growth in the underlying stockmarkets. Full quarterly bonuses are paid providing the indices do not fall at the end of each quarter. If one or more indices falls by up to five per cent, partial bonuses are paid. No bonuses are paid if all five indices fall by five per cent or more during the quarter.
Investors are guaranteed to get 95 per cent of their capital back at the end of each quarter, whatever the performance of the indices during that time. The downside of this is that the value of their investment could fall where partial bonuses of below five per cent are paid.