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Standard Life bond offers geared exposure

Standard Life has introduced the capital protected bond, a FTSE 100 linked structured product providing growth at the end of the five-year term.

Investors in this bond will receive 165 per cent of the average growth in the FTSE 100 after five years, subject to a cap of 55 per cent of the original investment. Investors will also get a full capital return at the end of the term regardless of the performance of the index.

To calculate the returns, the index is measured at the start of the term and then once a month during the final year of the term , which is(the averaging period. An average is produced from the monthly figures in the final year and this is compared with the initial valuation of the index to determine the growth over the five-year term. The final figures is then multiplied by 165 to produce the final return, which can be anything up to 55 per cent of the original investment.

This product could suit investors who are looking for geared exposure to the FTSE 100 index without putting their capital at risk. Barclays Wealth’s protected FTSE plan has a similar five-year option offering 150 per cent of the growth in the FTSE 100 after five years, capped at 51 per cent, which is lower than the potential returns of Standard Life’s product.

It is possible to achieve a full capital return with a higher participation rate of 300 per cent of the index growth with the Investec guaranteed FTSE 100 plan 1, but its cap on growth is lower than Standard Life’s at 50 per cent. Choosing between the plans will depend on investors’ views of the stockmarket in the next five years and whether the higher participation rate of Investec’s product is worth sacrificing the extra 4 per cent growth allowed under Standard Life’s plan.

It is also worth noting that Investec’s plan calculates returns through daily averaging on a six-month basis, so the choppy markets may have more of an impact compared with Standard Life’s.


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