Tesco Bank IL Retail Corporate Bond

Ark_Welder

Warning: this is not a cash deposit, so no recource to FSCS and you could lose all of your investment.


An 8-year index-linked retail bond has opened for offer. Indexation of both capital and interest - but the base for the coupon is 1%. Min £2000 initial.

Gains will be taxed as income if not held in a tax-free manner.


Final Terms
Inflation-linked Retail Bond
Drawdown Prospectus
Supplementary Offering Circular

oldvicar

Thanks ArkWelder. I find the recent increase in the number of RPI-linked investment opportunities fascinating.

It has been proven on these boards that some (many) people can misunderstand RPI and ordinary savings products such as NS&I's certificates. There could be even more 'fun' with these bonds.

I have selected just two points from the various links you provided as essential reading for anyone who may be much less informed than you. Although I fear that some may not read it however big the font size chosen.

However I slightly disagree that Customers who have ensured that they fully understand the risks also need to seek independent advice, as per the first point below,

(Notes to editors):

· The Tesco Bank RPI-linked Retail Bond may not be suitable for all investors. Customers should ensure they fully understand the risks and seek independent financial advice.
· The Tesco Bank RPI-linked Retail Bonds are not guaranteed by Tesco PLC or any other entity. In the unlikely event that Tesco Bank defaults or becomes insolvent, customers may lose some or all of their investment

Ark_Welder

oldvicar wrote: »

It has been proven on these boards that some (many) people can misunderstand RPI and ordinary savings products such as NS&I's certificates. There could be even more 'fun' with these bonds.

The first 'interesting' time will be when the recent IL bond from NG pays its first distribution. I'm sure that there will be a few surprised investors who are expecting RPI + 1.25% adjusted for the six months, so expecting a coupon based upon 4%-5% rather than something closer to 1.25%

Then there will be those that bought outside an ISA\SIPP and will be subject to income tax on their gain when they sell...

BLB53

So, for £1000 we get a return of £10 after one year. If inflation remains at 5% we get £10.50 in year 2.
I think the clear winners are Tesco. I'll buy the shares and get 4%!

oldvicar

BLB53 wrote: »

So, for £1000 we get a return of £10 after one year. If inflation remains at 5% we get £10.50 in year 2.
I think the clear winners are Tesco. I'll buy the shares and get 4%!

Originally Posted by oldvicar
It has been proven on these boards that some (many) people can misunderstand RPI and ordinary savings products such as NS&I's certificates. There could be even more 'fun' with these bonds.

See ... or is BLB53 just trying to wind-up oldvicar?

Ark_Welder

A bit of Opinion/comment, and an information booklet which has a list of distributors for the offer.

moneylover

Ark_Welder wrote: »

A bit of Opinion/comment, and an information booklet which has a list of distributors for the offer.

Thanks to everyone on this post - thanks given in normal way
'Fixed Investor' seems to like it and they explain it quite well - what do regular posters on this board think.

Ark_Welder

I think that it largely depends on your view of RBS...

..and also your timescale - and probably taxes. RBS recently launched a product (RBI2) that index-links the capital but has a fixed coupon of 2% per annum. So it is similar to the Tesco and NG bonds with regards to the capital return (and the taxation of any gain). But it takes a long time and/or high RPI for the distributions on the 1% and 1.25% coupons to exceed the fixed 2% (or 2.054% at today's closing ask price). RBI2 has only a 7 year life from launch, though.

But the security that looks to be showing the greatest potential currently is RBIX. It is taking very high inflation over sustained periods for the capital-linked products to match a potential return ( (20%+ Tesco over 8 years, +26% NG1Q over 9 years - 9 being the remaining life of RBPX). Using today's ask prices (or launch price for Tesco), no dealing costs and assuming zero taxes.


The caveat is that I want to double-check my calculations to confirm that I'm not missing anything - or mis-calculating anything! If I do then I'll post something for others to check (although probably there will be a lot less life left to them all by then!). But if anyone else has attempted the same and has some results then it would be good to hear from them.

From a tax point-of-view, any gain made on the capital-linked products will be taxed as income when they are sold or redeemend - and at the rates of tax in force at that time, whereas the coupon payments are taxed as income each year.