Norwich Union has entered the structured bond market with the launch of a protected product named Pr...
Norwich Union has entered the structured bond market with the launch of a protected product named Prosper.
The bond opens on 30 September and guarantees annual income of 6% net for basic rate taxpayers. A monthly income option paying 0.4% net and a growth option paying out 25.5% net at maturity are also available.
Commission is set at 3.5% and the bond carries an initial charge of 5.5%. Minimum investment is £5,000 and there is no maximum.
The bond is linked to the performance of the Dow Jones Euro Stoxx 50 and guarantees 100% capital return, provided the index does not fall by more than 20% of its start level at any time during the investment period.
If the index does fall more than 20% and subsequently recovers to its initial level by the maturity date, 100% of capital is still returned.
Capital erosion occurs on a one-for-one basis if the index falls below the 20% level and does not recover to at least its initial level.
The offer period on the product closes on 8 November and investment begins on 13 November.
Capital invested early attracts a 0.35% bonus in the first three weeks from 30 September and 0.15% in weeks four to six.
Norwich Union pointed out bonus capital does not attract tax whereas interest added to invested capital in the offer period would.
Based on past performance, this structure means a consumer investing £10,000 at the end of August 1998 would have seen 6% net income plus 100% of the invested capital because the index started at 1994.54 on 31 August 1998 and has not fallen below 20% of this value at any time within the past four years.
However, if investment started in 2000, when the index reached a peak, the 20% barrier would have been breached and investors would need the index to recover by at least 40% by 2004 to return 100% of invested capital.
A death benefit of 101% of cash in value also applies to the bond should the investor die within its lifetime.
For more information on the Prosper Income Bond, call Norwich Union on 0845 944 4800.
Favorable tax treatment
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