Woolwich Plan Managers has brought out the Woolwich Accelerated Growth Plan, a capital-protected bond linked to the FTSE 100 index for six years.
The bond provides a full capital return unless the index falls by more than 50 per cent during the term and fails to recover to at least its starting value. If this safety net is breached, investors will lose 1 per cent of their capital for every 1 per cent fall in the index. Investors will get 3.5 times the rise in the FTSE 100 index up to a maximum of 63 per cent, which means that the maximum amount will be paid if the index rises by around18 per cent.
If it rises by more than this investors will not benefit from it. For example, if the index rises by 30 per cent, investors will get the same return they would have got if the rise had been 18 per cent.
Although a geared return of 3.5 times any growth in the index appears attractive, this is only the case if the index rises by no more than 18 per cent over six years. Due to the recent downturn, the stockmarket still has plenty of scope for growth over the next six years. Investors will need to weigh up whether it is worth taking the risk with their capital for a return which is not so good if the index rises by more than 18 per cent.
Those who think the index is likely to rise by more than this may prefer a product which offers 100 per cent growth in the index and a full capital return regardless of index performance.