EGG Guaranted FTSE Bond

knuckledragger

I know that these type of investments have been on offer from various sources for a while now. Can someone please remind me of the negative side to them. The EGG site only gives the positives

cheerfulcat

The usual negatives are firstly that the end level tends to be taken as an average of the last six months of the bond's life ( which is a Bad Thing if the stock market suddenly takes off in the last month ), secondly that you are sacrificing the dividends which would be payable to, for instance, an index tracker and thirdly, many of them give only a percentage of the growth, or have a cap on it.

The Egg product takes the end level of the FTSE as the level on a specified date and gives you 100% of the growth so as these things go it's not a bad product. You're still missing out on the dividends, of course.

HTH

Cheerfulcat

Reaper

Another catch is that many of the schemes profits are liable to income tax rather than capital gains tax.

Most people have used up their income tax allowance through work but their capital gains allowances are untouched. That means you may have to pay tax on any profits made wheras you would not with a unit trust (as long as it was within the allowance or was put inside an ISA).

You should check with Egg to see if it is an income or capital gains type scheme.

knuckledragger

Once again, these things turn out to be not all honey!
I have a sneaking feeling that this is taxable as income. As has been said above, there are other routes to take to get similar investments. Thanks for the info.

mikeorange7

Thees type of accounts may be very suitable for someone approaching a reduction in thier tax status , for example some oone retiring in 4 years time maybe. This is because all profit is taxed depending upon the account holders tax status in the tax year it matures. So can in this case offset income tax for the first 4 year when may be a higher rate tax payer.

They still have to make profit though for this to prove a benifit!

deemy2004

Once again, these things turn out to be not all honey!
I have a sneaking feeling that this is taxable as income. As has been said above, there are other routes to take to get similar investments. Thanks for the info.

Yeh and watch out ! Your TAXED IN THE YEAR IT MATURES !
I.e. not annually. So for a non tax payer, this may at maturity turn you into a tax payer for THAT year. Or push you into the upper tax bracket.

Off course ! it needs make a profit by maturity.

If the FTSE rises 25%, yeh you make 25% GROSS

if you invest in say a 5.5% bond fixed, compound over 5 years, you will make 30.6% gross. Now thats with zero risk, and interest will be added each tax year.

Personally, if your going to invest in the stock market, do it direct in indiviual good return on equity and high dividend yeild stocks, that will over 5 years give you dividends of 20-30% on top of A Capital Gain, and offcourse your not locked in for five years.