Woolwich Plan Managers has established another issue of the accelerated growth plan, a capital protected bond that provides geared returns linked to the FTSE 100 index over a six-year term.
The plan will provide 700 per cent growth in the index, capped at 70 per cent. This means investors will benefit fully from the geared returns if the index rises by up to 10 per cent. If it rises by more than 10 per cent investors will get the maximum return available under the plan but the full amount of growth will not be passed on. For example, if the index rises by 7 per cent by the end of year six, investors will get seven times this amount - 49 per cent growth. However, if the index rises by 20 per cent by the end of year six, investors will get the maximum return of 70 per cent growth.
Investors will also receive a full capital return unless the FTSE 100 index falls by more than 50 per cent and fails to recover to at least its value at the start of the term. If this safety net fails, the original capital will be reduced by 1 per cent for every 1 per cent fall in the index.
The most appealing feature of this product is that returns will be boosted if the index rises by a modest amount - which is arguably when investors will most need it. However, the presence of a 70 per cent cap will act as a constraint if the index grows above 10 per cent. This is the price investors pay for the potential of geared returns and some degree of capital protection.
Although full capital protection is not on offer, the index would need to fall by half its starting value for investors to start losing their original capital which appears unlikely, although not impossible.