Egg 125% Guaranteed Equity Bond

steve695

Hi all,

I noticed that there has been some discussion about this (and similar) products recently.

It has been stated that the main problem with this sort of product is that dividends aren't received whereas they would be if you invested in an index tracker etc instead.

However, the forward yield for the FTSE 100 is 3.3% which all things being equal over five years compounds to 17.6%. Therefore surely the Egg product is a good one because the extra 25% is more than the (estimated) 17.6% you would receive in dividends?

Am I totally missing something here? :mad:

Cheers,
Steve

oldfella

its based on the FTSE 100 which isnt an ideal place to be
the return is taxed as interest not capital gains
the return is reduced by averaging in the 5th year
you cant time your exit
you cant get out early

having said that its a lot better than some GIBs

steve695

Ah, I see...

So while the gross return looks pretty good the tax treatment ultimately makes it worse for the vast majority of investors.

nrsql

>> However, the forward yield for the FTSE 100 is 3.3% which all things being equal over five years compounds to 17.6%.

The dividends would be re-invested so after payment they would be compounded at the increase in value of the index plus the dividend rate not just the dividend rate.

Say the index increased by 10% per year and 3.3% dividend reinvested.
After 5 years that would give 86% growth of which 61% was due to growth and 25% due to dividends.
The GEB would give you 125% of the 61% which is 76% so a 10% loss.

Of course the difference would be more if the growth was less, take into account the averaging of the last year also.
No charge for the calculations so treat them with caution.

steve695

Hi nrsql,

Yes, that makes sense. Thanks!

Steve