To get this return and the initial investment back, the FTSE-100 index has to be above the strike level after three years. There is also the potential to get a 12.5 % annual return if the FTSE-100 rises above 110% of its starting level.
The product has been called the “10:10 Twin Option Kick-Out plan” and, due to its 10-year maximum term and auto call function after three years, it is claimed its promoters to be a market first.
“For advisers and investors who believe longer term investment horizons mitigate short term risk, the 10:10 plan should prove worthy of consideration,” said Chris Taylor , head of strategic development at Lowes Structured Investment Centre (LSIC), a newly-created unit of Lowes Financial Management.
Products offering a guaranteed income over a fixed period have become popular since the UK pension reforms came into effect last April which abolished the requirement on many retirees to purchase an annuity.
Under the LSIC plan, if the FTSE-100 index is at or above its start level at any anniversary after the initial three-year period, the kick out feature comes into play and investors get their capital back plus a 10% return for each year or 30%.
If the index is below its starting level after three years, the plan continues with the same conditions on its anniversary each year, while the annual coupon is rolled up.
If the FTSE is below the required kick-out trigger levels at each anniversary and at the end of the investment term, the original capital is returned in full, unless the index is 30% or more down. If that is the case, then an investor’s capital would be reduced by the scale of the FTSE’s fall.
Societe Generale is the counterparty for the product and charges are included in the terms of the plan. LSIC said these fees were not expected to exceed 3.5% over the 10-year life of the plan.