FTSE 100 Investment Plans With Conditional Capital Protection
Two of our top defensive investment plans go head to head…
“A defensive investment plan can provide an investment return even if the stock market goes down, in the case of these two plans by as much as 20%.
The UK Step Down Kick Out from MB can kick out each year provided the level of the FTSE 100 Index is above the required level.
This level is 105% of its starting value at the end of year 1, and then reducing by 5% each year thereafter down to 80% in the final year.
If it does kick out, you will receive 5.5% for each year invested (not compounded). With the Investec plan you have to wait until year 2 before the plan can kick out (but at the same FTSE level), and the return is lower at 4.5% for each year invested. Both plans have a maximum term of six years.
“By combining investment returns even if the market falls over time, with some protection of your capital, step down plans have been popular recently with both new and existing investors.” Oliver Roylance-Smith, Head of savings & investments
The other main difference is the level of conditional capital protection.
If neither plan kick outs, your original capital is returned unless the FTSE 100 Index has fallen by more than 35% with the MB plan, and 40% for the Investec plan, so slightly more protection is offered with the latter.
Should the Index end below these levels, your initial capital is reduced by 1% for each 1% fall, so your capital is at risk.
This plan can be invested in a ISA so you can invest up to £20,000 using your 2020/2021 allowance if you have not used it already.
What are defensive investment plans?
For investors who are concerned with volatile markets defensive investment plans are designed to produce investment level growth returns even if the underlying investment goes down.
They offer a defined return for a defined level of risk, so you will know from the outset exactly what must happen in order to receive any growth and a return of your initial investment.
Although each plan has its own characteristics, they are designed for investors who are not convinced the markets will continue to rise and so wish to have the potential for investment returns even if the market falls slightly.
Although each plan has its own characteristics, collectively they are growth investments which offer the potential for either a fixed return for every year invested (not compounded), or a multiple in any rise in the underlying investment but starting from a lower initial level (normally with a cap on the maximum growth return on offer).
Each of these investments will be structured to offer a defined return for a defined level of risk, and as such you will know from the outset exactly what must happen in order to receive the stated returns on offer.
A middle ground
Defensive investments therefore try and offer the best of both worlds by offering the potential for investment level returns, even if the underlying investment only rises by a small amount, stays flat, or with some plans even goes down slightly.
This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive the potential for investment level returns.
Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the underlying investment. There is also a risk that the company backing the plan known as the Counterparty may be unable to repay your initial investment and any returns stated.
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future. Different types of investment carry different levels of risk and may not be suitable for all investors. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. * Details of how the Financial Services Compensation Scheme applies to investment firms can be found at fscs.org.uk.