Woolwich Plan Managers has established the premium protected
growth plan, a guaranteed equity bond that provides a minimum
return of investors' original capital after five years and six months.
The bond is linked to the FTSE 100 index and investors will also
receive 100 per cent of any increase in the index at maturity.
To calculate the returns, the closing level of the index is taken on
January 22, 2004 and is measured against the average closing level
of the index during the last 13 months of the term.
This product represents a good deal for cautious investors because
not only does it provide a full capital return regardless of the
performance of the index, it also offers all the growth in the index
without a cap or a participation rate. However, although capital is
protected, the use of averaging could dilute returns, especially if the
index dipped during the final 13 months after performing
exceptionally well mid-term.
Another problem could be the term of five years and sic months,
which may be longer than some investors would like. Some investors
may prefer products with early maturity triggers, so there is a chance
that they could get access to their money before the end of the term
without jeopardising the capital protection.
Dunbar Bank's Zurich guaranteed account 5 is a FTSE 100-linked
bond that offers a full capital return regardless of index performance.
This bond will mature in year three, providing 30 per cent growth if the
index has risen by at least 30 per cent. If it has not, investors will get
100 per cent growth after five years and six months.
Some investors may prefer the Woolwich product because it has a
set maturity date, whereas the Dunbar Bank may make financial
planning difficult as investors do not know at the outset when they will
get their money.