Barclays Wealth FTSE Generator Bond 6%

triplea35

An earlier question prompted me to look a bit deeper into guaranteed equity bonds. This appears to be a new product:
http://www.barclayswealthprotectedinvestments.com/pub/doc/product/265/10799%20BWL1227%20FTSE%20Generator%20Bond%20Issue%20-%20September%202009%20-%20Brochure.pdf

Most bonds appear to be for a fixed term and if FTSE is higher on the particular maturity date then the guaranteed return is paid and if it is lower you just get your investment back. I'm put off these due to the ups and downs of the market.
However this one appears to address that worry in that from Year 3 onwards in the life of the six year bond if the FTSE is higher than at the start the bond matures and capital is repaid plus 6% pa. This is checked every six months and if the FTSE is higher at any of these points the bond is repaid with interest. Only if the bond runs for the full six years and is stll lower would just the capital be repaid.
It is therefore giving a 3 year 'window' to iron out any 'troughs'.

Any views please?
My one concern at the moment is has the £50000 protection under the Isle Of Man compensation scheme. How secure is that?

Thanks

CLAPTON

as the interest isn't compounded each year the EAR is only 5.26%

so you may get no interest or you may get 5.26% in return for tying up money for 6 years

Danamic

First of all this is what is known as a structured product. These have been gaining popularity in recent years due to peoples fear about investing directly to the stockmarket.

Ultimately though, a structured product like the one above has equity risk attached to it. You are relying on the performance of the stockmarket to get a return, and the guarentee of return of your initial investment does come at a cost.

One area, and Im glad you have considered it, that is usually overlooked is that of "What happens if the company goes bust?".

I have read of people who had structured products who were backed by Lehman Brothers. They certainly now know what credit risk is, and the debate with the FSCS is still ongoing.

Ultimately when talking about "structures" its easier to put it into other situations.

Would you be happy with this:

I will take £10,000 from you. Place it into my bank account and keep the interest from it.
At the end of each year, I take some funds in the account to Aintree Racecourse to put on one horse. If I win, I give you 20% of the winnings and your money back.

If I keep losing, I return all your money and Im happy since I received all those interest payments.

Or

I ask to borrow your car for 1 month to go offroading and I make a promise.

At the end of the month;
if it has rained on 14 days or more. I'll pay to get your car all fixed up with a new paint job and new bodywork.
if not, Ill return it and not even refill the petrol tank.

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You decide.