Q: What does the cap mean?
Some structured investments which deliver gains based on growth of an index may apply a cap on the total return available from the product.
Some structured investments which deliver gains based on growth of an index may apply a cap on the total return available where the growth offered is a multiple of the growth of the index, which in recent times has been as much as eight times the rise in the index.
Ian Lowes, managing director of Lowes Financial Management and founder of StructuredProductReview.com, said these products are useful to benefit from low index growth in the investment period.
Though the cap will be dictated by the pricing of the underlying product components, Chris Powell, head of IFA sales at Jubilee Financial Products, said it nevertheless has to be perceived by investors to be set at a sufficient level to offer them a competitive return should the cap be reached, otherwise it will attract little or no interest.
Many geared growth products are subject to a cap, he added.