Morgan Stanley has announced the launch of the Gilt Backed Growth Plan 16, a kick-out plan offering investors a potential return equal to 6.7 per cent for each year held if the FTSE 100 index is at or above its starting level on a plan anniversary from year-two onwards.
The plan has a maximum six-year investment term, but will mature early at the end of years two, three, four or five if the FTSE 100 index is at or above its initial level at that time.
In the case that the plan does not kick out early, capital will still be protected at maturity, subject to a significantly reduced level of counterparty risk, as long as the index has not fallen by 50 per cent or more at any point during the six-year term.
The plan is a structured capital at risk product and is not capital protected.
Any negative performance in the FTSE 100 index on a one-to-one basis, measured from the plan’s start date to end date, would then reduce capital payment.
The plan uses gilts to recover the repayment of capital at maturity, as well as gilts or cash to collateralise any returns due to investors.
Investors have until 12 September to purchase the plan. The deadline for Isa transfers is 5 September. The start date is 26 September.
Comment:
The Gilt Backed Growth Plans consistently ranks as one of Morgan Stanley’s most popular investment products in the UK retail market, demonstrating that not all investors are solely interested in products with the highest headline rates, and that many seek to minimise their counterparty exposure instead.
While the plan may mature early on one of the kick out dates, this is not guaranteed, so investors must be prepared to stick with the plan for the full six year investment term.
The plan is a Structured Capital at Risk Product (Scrap) and is not capital protected. Therefore, if the plan runs for the full six years and the FTSE 100 closes at or below 50 per cent of its initial level on any day during the term, then you will loose some or all of your investment. The repayment of your investment would then be reduced by the amount the FTSE 100 has fallen during the plan duration.
However, investors’ counterparty risk is reduced. Repayment of the initial investment at maturity is covered by UK government bonds and the plan return is collateralised with UK government bonds or cash.
If you are looking for a plan that will provide a return at maturity only, and are looking for returns that are linked to the FTSE 100 but are aware that any returns are fixed and may be less than the actual index performance, and you find a lower counterparty risk is appealing, then this may be the right product for you.
