Investec Fund

The Structured Product that I like most and have had most success with. Here I explain how it works and the pros and cons of such a Plan.

As I wrote in my Multimillionaire Road Plan Review 2 I own a structured product called the Investec FTSE 100 Enhanced Kick-Out Plan 22. The product is on course to mature on the 14th of September yielding a healthy profit of 10.5% on my investments, boosting my capital to £8,775.91. This is clearly a good return in 12 months, especially considering that it is in ISA form and so I don't pay any tax on it.

How does the Structured Product Work?

Picture from
This product has a zebra as it's logo!
The product is fairly straight forward to understand and is considered a balanced risk product. First, you deposit your money with Investec. Investec then take an Initial Index level of the FTSE 100 on a predetermined date. Mine was 14th September 2011 when the FTSE 100 stood at 5227.02. If exactly 12 months later the FTSE 100 is even 1 point higher then the product is finished and you are paid the predetermined percentage plus your original capital. In my case I received 10.5%. However if you were to invest today you could earn 13% in 12 months.

But what if the FTSE 100 is down on the previous year?

Don't Panic! If this occurs, the product runs for another 12 months and if the FTSE 100 is then above the initial index then you receive double the original percentage. In my case that would have been 21%. Fortunately I did not have to wait another year. Clearly the only draw back is that you don't receive any benefits of compounding.

But what if the FTSE 100 is down again?

Don't Panic...again! The same process runs again at the end of years 1, 2, 3, or 4 depending on where the FTSE is. Each time you increase your return. So after year 3 it would have been 31.5% and year 4 it would have been 42%. If the Plan does not mature early and runs for a fifth year then you receive a return of 120% of any FTSE 100 growth.

Are there any drawbacks?

If the FTSE 100 has fallen by more than 50% of the initial index level at any point during any of the years that the Plan has run for, your initial capital is reduced by 1% for every 1% the FTSE 100 is below the initial index at the end of year 5. However, if the FTSE 100 has only falled 49% or less below the initial index level during the 5 years then you receive capital in full. Of course the cost of this is that inflation has eaten your savings and you have lost in terms of the opportunity cost of keeping your capital in cash or invested elsewhere.

Conclusions on the Structured Product

I am a big fan of this type of product. It gives exposure to equities whilst providing protection against some risk. This was the second time I have held a product such as this and it has been successful both times.

Readers, what do you think of this financial product? Would you invest in something like this? Would you like to know more?

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