iDAD have just launched another market leading headline structured deposit plan – with Goldman Sachs as the counterparty… it’s a product that’s a ‘must-hold’ forming part of an investment programme
Deposit Plan – Capital Protected with FSCS protection up to £85,000.
Why we like the iDad Callable Deposit plan with Goldman Sachs as the issuer.
How the Investment works
The Callable Deposit Plan – April 2019 – New issue
This is a 7-year 2-week Deposit Plan based on the performance of the FTSE™ 100 Index. The Deposit Plan is constructed to offer a potential return of 8.00% per annum to the redemption date if the Deposit Taker calls the investment early (please refer to the ‘Callable Feature’ below), or 250% participation in any growth of the FTSE™ 100 Index at maturity.
If the Deposit Plan is not called early, at maturity, the investor receives a return of 250% of any positive growth in the FTSE™ 100 Index. For example, at maturity, if the FTSE™ 100 Index had risen 10% from the Initial Index Level, the investor will receive 100% of their investment back plus a 25% growth payment (10% X 250%).
The opportunity for full capital protection and enhanced growth is the key aim of this investment product. The investment is linked to one of the best-known indices in the world (see page 5 of the Brochure for full details) and investors will benefit from geared growth in the Index unless, the Deposit Taker, Goldman Sachs International Bank (GSIB) “calls” the deposit early, in which case investors will be paid a very competitive fixed rate of return – considerably better than current cash rates. The enhanced participation is designed to more than make up for the loss of dividends a direct investor into the Index would benefit from, and although the returns are effectively capped, because the deposit is very unlikely to deliver more than the 8.00% per annum coupon rate, the cap is at an attractive level relative to current interest rates.
The initial investment, minus any initial Adviser Fee, will be returned in full on the Maturity Payment Date, or if GSIB calls the Deposit Plan early, regardless of the performance of the Index, as detailed in the Key Observations table on page 4 of the Brochure.
The Callable Feature – what is this and when may this occur?
On each quarterly Observation Date, from the second anniversary onwards, the Deposit Taker (GSIB) has the option to ‘call’ the Deposit Plan at their discretion. This means the Deposit Plan will be redeemed at that point and investors will receive their Initial Capital into the Deposit Plan, together with the fixed rate of return detailed above. For example, if the Deposit Taker called the Deposit Plan on the second anniversary, the investor would receive 100% of their Initial Capital plus a 16% return. (Again, this is the kind of ‘cash back’ we like at Best Price FS).
The callable feature provides GSIB with the ability to redeem the Deposit Plan early on any Callable Observation Date, details of which can be found on page 2 of the Brochure under ‘Product Information’.
The main reason this may happen is because GSIB believes the enhanced growth participation that could be paid out at maturity, may be higher than the coupons that have accumulated so far. It works in a very similar way to having a cap on the maximum pay-out.
For example, if after 4 years the Index has grown by 25% and seems set to continue growing, the Deposit Taker may feel that they will be better off redeeming the Deposit Plan and paying 4 years of the fixed annual return, rather than potentially paying the Index related return once the Deposit Plan matures.
Although this feature allows the Deposit Taker to avoid paying very high returns, the fixed annual return is set at a rate that is attractive, particularly when combined with the capital protection feature.
Structured Deposits within your SIPP
Despite significant volatility in markets in 2018, the last 12 months have been fantastic for Structured Products, based upon the way the investment markets’ results have unfolded, against the contract terms offered.
Whether you are approaching retirement or drawing your pension relying on equity-based returns with risk to capital can be a daunting prospect.
With continuing Brexit uncertainty, higher than normal market volatility, low annuity and interest rates now may be a great time to consider a Structured Deposit to provide either income or further potential growth to your pot whilst enjoying full capital protection if held to maturity. If the bank were to go bust, you may also qualify for FSCS protection on your deposit currently £85,000 if eligible.
On top of the usual tax benefits for investing in your SIPP your Structured Deposit has the potential to yield a coupon of 8% p.a. if Goldman Sachs International Bank decide to call the plan early (from 24 months to the penultimate quarter thereafter). If the plan isn’t ‘called’, then you would receive growth equal to 2.5 times the growth of the FTSE 100 from the strike date to the end date.
As an investor, the risk remains only with your returns and not your capital and if the FTSE falls over the full period of this Structured Deposit then you would only receive your original capital.
Don’t forget the risks
We always recommend our investment clients access a wide range of assets, in line with overall risk objectives and risk capacity to suffer reductions in asset values when investment markets fall.
Promoting attention to investment products must not be taken as ‘Advice’. Advice is always personal to the specific needs, goals and circumstances of the investor.
On a Risk versus potential return basis, we very much like this product solution.
Best Price FS Team
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