New bond offers to put icing on cake

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The Independent Online
SAVE & PROSPER is the latest fund management group to launch a bond that aims to let investors have their cake and eat it too.

Its Guaranteed Bond undertakes that it will increase 99 per cent of the investor's original capital in line with the FT-SE 100 index over five years. But if the index does not show a profit over that time investors get their original sum back.

The launch period runs from 16 November until 11 December and applications received by 27 November qualify for a 1 per cent bonus on their original investment. The guarantee will then apply to the total sum.

S&P is also offering the option to protect investment growth during the five-year period. Each time the FT-SE index rises by a 10 per cent step above its level at the outset the gain is guaranteed, even if the market falls later. The maximum rise that can be tied in this way is 50 per cent.

Investors who choose this option, rather than having 99 per cent of their original investment rise in line with the FT-SE 100, can only have it applied to 92 per cent of their original deposit.

S&P says that if the FT-SE was 100 when someone invested and rose to 150 the investor would end up with pounds 138 on each pounds 100 invested.

Investors who choose this second option can still receive the gain in the index at the end of five years, but only on 92 per cent of their money. Minimum investment is pounds 2,500.

S&P's bond includes life insurance cover and the tax rules are the same as for a single premium life insurance bond. There is no basic rate tax to pay on proceeds after five years, but higher rate taxpayers will have a bill.

Scottish Provident, Citibank Life and Hypo Foreign & Colonial are among the other companies to have launched or relaunched guaranteed growth products recently. A common feature is that a portion of the investor's money is invested in futures, options and deposit accounts to return the original capital.

The risk for investors with all these products is that stock markets will rise by more than the guaranteed uplift.

Most are also designed as bonds so are not as flexible as a straightforward investment in a unit or investment trust.

They require money to be locked up for a set period, and although there may be a surrender value it will not necessarily match what the individual has put into the product.

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