The bond has a four-year term and will provide investors with income at the rate of 6.5 per cent a year or 1.55 per cent a quarter.
Investors will get a full capital return at the end of the term provided that the index does not end up lower than its initial value by the end of the term. If it does fall below the starting level, investors will lose 1 per cent for every 1 per cent fall in the index.
NDF timed the launch of this product with the maturity of a similar income-producing product from AIG, enabling investors in that product to reinvest in a similar vehicle. Equally, NDF feels the plan will be useful to new investors looking for income.
According to the product database on the Structured Retail Products website, there are currently no income producing structured products like this, Some products produce income alongside growth through a combination of a guaranteed equity bond and a deposit account, but these do not provide a good comparison with the NDF product.
The main drawback of the NDF product is that there is no cushion if the index falls – even if it falls by 1 per cent, investors will lose 1 per cent of their capital. But this may be inevitable for a pure income product in the current climate.
The only other alternative for investors currently seeking income from a bond product is Keydatas secure income bond, which has a five-year term. This offers a choice of 7.5 per cent income a year, 1.875% income a quarter which are both higher than the NDF product or a growth option of 43.5 per cent at the end of the term. However, this product is linked to maturing life insurance policies, which some investors may not like.