The plan is linked to the FTSE 100 index for a term of six years and three weeks. Investors will receive double the growth in the index, capped at 94 per cent of the original capital, if the index rises. This means they will get the maximum return if the index rises by 47 per cent but any growth above this percentage will not be passed on. Alternatively, investors will receive 100 per cent of any fall in the index up to 40 per cent. There will also be a full capital return provided the index does not fall by more than 40 per cent without returning to at least its initial value by the end of the term.
To calculate the returns, the closing level of the index is recorded on March 19, 2010. The index is observed during the investment term to see whether the capital protection barrier is breached, and the final index level is taken on March 21, 2016. The final index level is then compared with the initial value to determine how much the index has risen or fallen and this will provide the basis for investors’ final returns.
According to the IFA website StructuredProductReview, Merchant Capital’s plan is unique. Morgan Stanley’s best entry plan issue 2 is a six-year FTSE 100 linked plan that also provides double the growth in the index but it is capped at a lower level of 80 per cent of the original capital. It takes the lowest of four monthly closing levels of the index as the initial level to ensure investors have the best chance of growth and provides more capital protection than Merchant Capital’s plan. The Morgan Stanley product offers a full capital return provided the index does not fall by more than 50 per cent by the final day of the term – so there is no observation period during the term. However, it has no potential to benefit from index falls.