Type: Capital-protected bond
Aim: Income linked to inflation through the UK Retail Price index and the return of capital linked to the performance of the FTSE 100 index
Minimum-maximum investment: £3,000-no maximum, Isa £10,680
Term: Five years
Return: 5.25% income at the end of year one, 1.5 times the annual increase in the UK Retail Price index
Protection: Original capital returned in full at the end of the term provided the index does not fall by 50% or more by the final day of the term
Closing date: August 24, 2011, August 17, 2011 for Isa transfers
Commission: Initial 3%
Tel: 020 7425 9000
This five-year structured product from Morgan Stanley IQ provides income linked to inflation through the UK Retail Price index, while the return of capital depends on the performance of the FTSE 100 index.
Putting the product in to its market context, Baronworth Investment Services director Colin Jackson says: “Inflation is a topic that is regularly in the news so Morgan Stanley coming up with the inflation linked income plan is an excellent piece of marketing – or simply good fortune.
“As is to be expected with Morgan Stanley, the literature is well presented, easy to understand and user friendly.”
Jackson points out that investors’ funds are invested in to securities issued by Morgan Stanley International which are rated A+ by Standard & Poor’s. He adds that In addition to direct investments, the product accepts investments into an Isa wrapper and Isa transfers.
“Return of capital is linked to the FTSE 100 index. The initial capital is paid in full on maturity provided the Index is above 50 per cent of its level on the start date of the plan. The European capital protection barrier is utilised, which is more favourable to investors as it does not matter if the Index falls by 50 per cent or more during the term of the plan. It is where it stands at the end that counts.”
Jackson feels that commission of 3 per cent is in line with the market.
Turning to the potential drawbacks of the plan Jackson says: “At the end of the first year investors receive a fixed income payment of 5.25 per cent, which is on the low side. Annual income payments thereafter will be equal to 1.5 times the annual increase in the UK Retail Price index – the inflation rate.
“As the Government will do everything in its power to bring inflation down, there is a reasonable chance that the level of income will be lower than anticipated. Furthermore, if the year-on-year change in the UK RPI is zero or negative, no income will be paid for that year.”
Discussing products which could provide the main competition, Jackson says: “I cannot, currently, locate any products where the level of income is linked to the UK Retail Price index.”
Suitability to market – Average
Investment strategy – Average
Adviser remuneration – Good