Woolwich Plan Managers has brought out the accelerated growth plan, a capital-protected bond linked to the FTSE 100 index for a six-year term.
Growth at 350 per cent of the rise in the index is offered but this is capped at 63 per cent. This means the index must grow by at least 18 per cent during the term to get the full return, but if there is a larger increase investors will not fully benefit from the geared return because of the cap on growth.
To calculate the returns, the closing level of the FTSE 100 index is recorded on September 17, 2004 and compared with the closing level of the index on September 17, 2010.
The bond offers soft protection, which means investors will get their original capital back in full only if the index does not fall by more than 50 per cent during the term. Even if it does, but recovers to at least its starting value, investors will get a full capital return. However, if the index fails to recover investors will lose 1 per cent of their capital for every 1 pr cent fall in the index.
This product fits into the market at the higher end of the risk spectrum, as the capital protection is only conditional. However unlikely it may be that all the original capital is wiped out, it is still a risk that could put off some investors.
Unlike many lower-risk products, this one does not use averaging so if the stockmarket peaks during the term and then dips at the end, investors would not benefit from the high points and the returns would be lower. However, this also works in reverse, so investors will fully benefit from any peak that coincides with the final day of the term.