Top 10 Reasons To Consider Kick Out Plans
Kick out plans pay out a defined return providing a predefined event takes place. This event is normally based on the performance of an underlying investment, often the FTSE 100 Index. They offer both capital protected and capital at risk opportunities, and as such have become popular with both savers and investors. With this interest continuing to rise, we give you our Top 10 reasons to consider this type of plan.
1. Defined return v defined risk
The investor has the benefit of knowing at outset the conditions that need to be met in order to provide the stated returns, thus providing a defined return for a defined amount of risk, which can then more easily be compared with alternative investments as well as the returns available from cash savings.
2. FTSE linked
Plans linked to the FTSE 100 Index provide a return against what is widely recognised as the proxy benchmark for most investment managers. Since the historical volatility is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment.
3. Potential to beat the market
Most kick out plans will mature early if the level of the FTSE at the end of the year is higher than its starting value (sometimes this is subject to averaging). This means that even if the FTSE has only gone up by a small amount, you would still receive the full growth rate thereby offering the opportunity to outperform the market.
4. ‘Defensive’ plans
In addition to those investments which kick out in the event that the FTSE is higher at the end of each year, there are also plans that will still provide a competitive return even if the Index falls slightly, catering for varying investor views of what will happen to the FTSE in the coming years. With the FTSE at historically high levels, this has proved to be a popular feature.
5. A disciplined approach
The mechanics of these investments removes the need for the investor to worry about when to come out of the market since the decision is made for them by the pre-determined market conditions required for the plan to mature. When the plan matures, the investor then has the opportunity to reassess their options.
6. Conditional capital protection
Your original capital is returned if the plan kicks out but should this not occur, typically your capital will be returned provided the FTSE has not fallen below 50% of its value at the start of the plan. To put this into context, based on this morning’s opening value of 6,728.4, the index would have to fall to a closing level of 3,364.2 before your capital would be at risk, a level not seen since the middle of 1995. Please also remember that past performance is not a guide to future performance.
7. Fully capital protected options
This type of plan is also available with full capital protection offering the potential for returns which are higher than those currently available from the more traditional fixed rate bond as well as Financial Services Compensation Scheme eligibility (up to £85,000 per individual per institution). However, it should be remember that unlike fixed rate bonds the returns are not guaranteed.
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8. No annual management charges
With Kick Out plans the charges for creating and managing the investment are taken into account in the headline return so there are no annual management charges which come out of the headline return. Some kick out investments also have the arrangement fees included while others will have an initial charge of up to 3%. This compares favourably with a typical UK equity fund which will have an initial charge of up to 5.5% and total annual charges of 1.66% (source: Morningstar, 2012).
9. A cost-effective option
The costs associated with the management of funds happens each and every year (in both actively managed and tracker funds) which may help to explain the number of funds which fail to outperform their benckmark, especially over a five year period. This ongoing cost is not a feature of kick out plans since all annual charges are included in the headline rate of return.
10. Tax efficient – ISA friendly
All of the kick out plans detailed by us at www.fairinvestment.co.uk are available for individuals to use their annual Cash ISA allowance (capital protected plans) or stocks and shares ISA allowance (capital at risk plans) and will also accept ISA transfers. The current 201/2014 tax year ISA allowance is £11,520 of which £5,760 can be put into a Cash ISA. Please note that tax treatment depend on your individual circumstances and is subject to change in the future.
Current market offering
Kick out investment plans offer the potential for high returns balanced with conditional capital protection and the current market covers a wide range of counterparties, collateralised versions and ‘defensive’ plans which aim to reflect the prevailing market conditions. This gives a variety of plans from a number of different providers allowing the investor plenty of choice.
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Experienced investor section
We also have a number of kick out investments for our existing customers and those more experienced investors where you will find a range of dual Index plans which offer a higher risk versus reward, with current headline returns of up to 13%.
Click here for our experienced investor section >>
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may change. Make sure you check whether any charges apply prior to transferring any existing investment.
Different types of investment carry different levels of risk and may not be suitable for all investors. Some structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to their future performance.