Investors will get their original capital back in full regardless of the index performance or when maturity takes place. If the index has risen by at least 7 per cent in year two, 10.5 per cent in year three, 14 per cent in year four and 17.5 per cent in year five, the product will mature early, paying out 14 per cent, 21 per cent, 28 per cent and 35 per cent of the capital invested respectively.
If the early maturity feature is not triggered by the index performance, the bond will run full term, paying out 100 per cent of the growth in the index at the end of the six-year term.
According to the product database on the StructuredRetailProducts website, NDF Administration and Bristol & West are both offering similar six-year products with early maturity features. However, the NDF product provides the best comparison as it has early maturity points in every year, unlike the B&W product.
Under the NDF growth plan May 05, investors will receive 20 per cent of the original capital if the index has risen by at least 20 per cent in year two, 30 per cent if the index has risen by at least 30 per, 40 per cent if the index has risen by at least 40 per cent in year four and 50 per cent if the index has risen by at least 50 per cent in year five. Otherwise they will get 120 per cent of the growth in the index at the end of the six-year term.
The Structured Solutions Group product offers higher returns at early maturity relative to the required rise in the index for example in year two a 7 per cent rise is needed to receive 21 per cent growth, while a 20 per cent rise is required to receive 20 per cent growth under the NDF plan. This may mean the Structured Solutions Group product is more likely to mature earlier, while the NDF product has the higher participation rate in the event of the product running full term.