Returns of 1.3 x RPI, and other choices

JamesU

Ditto, ditto. Sounds about right.

JamesU

cmorgan091

I don't disagree and like you guys I limited my exposure on this (although it didn't stop me investing!)

Hopefully though it will all work out nicely. The good rates along with the low price point on the secondary market make it a good level of reward, which goes hand in hand with the level of risk... No such thing as a free lunch!

Ark_Welder

Just noticed that RBS has launched a new variant of an inflation-linked retail bond. With this one the coupon is fixed at 2% gross per year, but the capital is adjusted for inflation. I haven't seen anything in the factsheet regarding tax treatment, but given tha the capital return is (potentially) greater than at launch then one should assume that the gain is taxed as income - just as the NG bond is. However, this bond has more than five years until maturity, it can be held within an S&S ISA, as well as a SIPP (or direct, come to that). One feature, similar to the NG bond, is that the bond will be repaid at par in the event that RPI is lower than now at the end of the term... (polite laughter, please!).

As ever, read the risk sections, especially with regards to RBS being the counterparty, etc.

And a note for newcomers to these products: they are not cash deposits and you could lose 100% of your investment.


http://ukmarkets.rbs.com/MediaLibrary/Document/PDF/ProductDocuments/GB00B3YYW134/GB00B3YYW134_EN_Factsheet.pdf

Masomnia

Ark_Welder wrote: »

Just noticed that RBS has launched a new variant of an inflation-linked retail bond. With this one the coupon is fixed at 2% gross per year, but the capital is adjusted for inflation. I haven't seen anything in the factsheet regarding tax treatment, but given tha the capital return is (potentially) greater than at launch then one should assume that the gain is taxed as income - just as the NG bond is. However, this bond has more than five years until maturity, it can be held within an S&S ISA, as well as a SIPP (or direct, come to that). One feature, similar to the NG bond, is that the bond will be repaid at par in the event that RPI is lower than now at the end of the term... (polite laughter, please!).

As ever, read the risk sections, especially with regards to RBS being the counterparty, etc.

And a note for newcomers to these products: they are not cash deposits and you could lose 100% of your investment.


http://ukmarkets.rbs.com/MediaLibrary/Document/PDF/ProductDocuments/GB00B3YYW134/GB00B3YYW134_EN_Factsheet.pdf

So your capital is going up directly with RPI, plus you get 2%pa interest? Sounds fantastic, better even than the NS & I offering? (Assuming they don't default and you don't pay too much above par value.)

Ark_Welder

Masomnia wrote: »

So your capital is going up directly with RPI, plus you get 2%pa interest? Sounds fantastic, better even than the NS & I offering? (Assuming they don't default and you don't pay too much above par value.)

The 2% is fixed and is subject to income tax, plus any gain at maturity of if sold is also subject to income tax. I haven't run a compare against the other RBS offerings yet to see which might work out better in different circumstances, but RBPI, RBPX and this one (RBI2) are all below par right now. The new bond was launched on the 7th November.

There will be broker fees involved with making a purchase and sale, so these should also be factored in to the potential return. Also the individual's tax situation.

Masomnia

Ark_Welder wrote: »

The 2% is fixed and is subject to income tax, plus any gain at maturity of if sold is also subject to income tax. I haven't run a compare against the other RBS offerings yet to see which might work out better in different circumstances, but RBPI, RBPX and this one (RBI2) are all below par right now. The new bond was launched on the 7th November.

There will be broker fees involved with making a purchase and sale, so these should also be factored in to the potential return. Also the individual's tax situation.

If it's purchased within an ISA though, the tax situation wouldn't apply, though I guess.

Reaper

Very interesting, but perhaps slghtly less apealing compared to RBPX on closer inspection unless you expect the inflation rate to drop.

If you took a simplistic approach and said it pays RPI + 2% that is only a better deal then RPI * 1.3 if inflation is low, below 5%.

More significantly the market price of RBI2 is around 98p whereas RBPX is alround 85p so you can buy the latter at a good discount boosting both your income yield and the eventual redemption.

Ark_Welder

Reaper wrote: »

Very interesting, but perhaps slghtly less apealing compared to RBPX on closer inspection unless you expect the inflation rate to drop.

If you took a simplistic approach and said it pays RPI + 2% that is only a better deal then RPI * 1.3 if inflation is low, below 5%.

More significantly the market price of RBI2 is around 98p whereas RBPX is alround 85p so you can buy the latter at a good discount boosting both your income yield and the eventual redemption.

When I was looking at these at the time of the launch of the NG bond, RBPI came out better at low inflation, i.e. sub 2.5%, and NG above 10%, with RBPX doing better in between. All assuming a 9-year timespan being the remaining life of RBPX. Also, no charges or taxes, and worked from the relevant ask prices at that time. I'd expect the new bond to be more similar the NG given that the indexation is on the capital - and only capital - in the case of RBI2.

Sceptic001

I like inflation-linked investments, but why is it that I feel uneasy about investing with A rated RBS, but am relaxed about National Grid (BBB+ rated) ?

(NB. This is a rhetorical question, but don't let that stop you answering it )

Ark_Welder

Sceptic001 wrote: »

I like inflation-linked investments, but why is it that I feel uneasy about investing with A rated RBS, but am relaxed about National Grid (BBB+ rated) ?

(NB. This is a rhetorical question, but don't let that stop you answering it )

Making a connection to the National Grid results in less of a shock?

...although something with 'fingers getting burned' might have been better...:o