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Zurich in win-win situation

Zurichs new guaranteed equity bond, the Zurich guaranteed account 7, offers investors a full capital return plus capital growth in rising or falling markets over a six-year term.

The bond provides 100 per cent of any rise in the FTSE 100 index or a return equal to any fall in the index up to 50 per cent. This means that if the index falls by more than 50 per cent, investors will end up with only their original investment.

Zurich has aimed this product at investors who occupy the very cautious end of the risk and return spectrum. These investors may know they can get a full capital return and an attractive return in a rising market from other providers, but may be worried about coming away with just their original capital if stockmarkets do not perform well. As the product is structured as a deposit account, it qualifies as a mini cash Isa.

To calculate the returns, an average of the closing levels of the FTSE 100 index is taken during the last year of the term and this is compared with the closing level of the index on June 3, 2005.

Although the product is designed to be held for six years, emergency withdrawals of at least 500 can be made. However, withdrawals are subject to a fee which may put investors off using the facility.

This product provides a solution for investors who do not want to take a gamble on the interest they would have received from a building society account. While it may seem unlikely that the index will fall by more than 50 per cent during the next six years, there is still a risk that it could, in which case investors will end up with nothing beyond their original investment.

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