THE independent stockbrokers, MMI, has brought out its first guaranteed bonds, from which total growth is based on complicated multiplications of minimum returns.
The first bond is Multiplier Guaranteed Bond, a variation on the more conventional tracker bond with two indices represented - the FTSE-100 and the Nikkei 225. Unlike the simpler trackers, this, one works out the total growth over five years and nine months by multiplying the growth in the two markets by 6.67 per cent up to a maximum of 15 per cent (i.e. 100 per cent).
So convoluted is this calculation that the stockbrokers have produced a three-page explanation in addition to the promotion document to try and clear up any confusion. Stripped down to its basics,, we understand the offer to be that if either of the two markets grows by 15 per cent over the period you will double your money. "In the unlikely event that either market does not grow by a total of 15 per cent over 5 years and 9 months, then the bond will still pay 6.67 times the lower growth rate (return is capped at 100 per cent)."
The second product, the Multiplier II gives a choice of taking an income or not and in both cases puts 85 per cent of your minimum £5,000 on deposit with a fixed rate" of interest of 6 per cent per annum. The balance of 15 per cent then buys the British and Nikkei option; if both of the indices rise by 15 per cent or more over the term, the investor receives 3.33 times the growth which equates to an additional maximum 50 per cent.
The structure of this bond is so unnecessarily complicated that brokers Family Money contacted for a comment wondered who it was aimed at: "Tracker bonds are getting simpler and more basic and for many people this is one of their main appeals," said one Dublin broker who admitted that he would find it very difficult to explain the MMI bonds to most of his clients.
Other features of this product include the opportunity to set up the deposits as special savings accounts in order to avail of the lower DIRT. The promoters claim that the multiplier effect will produce higher returns than by simply tracking the two indices, but we suggest prospective investors engage independent financial advice in order to confirm this claim.
