Income and growth

Q You recently covered the topic of combining income and growth under one product. While you favoured separate products for each investment need, I wish to make matters as simple as possible by having the one product that offers - 100% capital protection, a good rate of interest on half my capital and the other half invested in the stock market. What are the best products on the market in sterling?

A Most banks offer the above products from time to time but the interest rates and stock market growth differ greatly between providers. There are issues of these equity-linked deposits available from local banks on a regular frequency. They offer security and a minimum return if held to maturity.

Looking further afar, i.e. outside Malta, there are similar products that in my opinion offer the same amount of security but, importantly, much healthier returns.

As an example, an investor can select products that offer a rate of interest of up to 0.75% above the bank base rate on half the capital.

The other half is invested in one or more stock markets, such as the FTSE100 and receive the full 100% growth of the index over the term. At all times the capital is protected from any losses. The normal terms of these products are five years.

As the Bank of England Base Rate is currently 4.75%, in this example, the investor would receive 5.5% interest on the 'income' half of the investment, which could be paid monthly or annually.

Equally as impressive is that the full 100% of the growth of the index is given on the other half. It is much more common for a participation rate of only 50-60%.

Such products are offered from some of the major banks and building societies in the Channel Islands and Isle of Man. Unless you read the International press or subscribe to investment Websites, it is unlikely that you would know of them.

It is more customary to go for the easier option of accepting what your present bank is offering as you are not aware of your options. But why 'give away' 40% or 50% of your capital growth potential?

It certainly pays to shop around and look for the best products and from leading banks and building societies. While it may be better still to have separate 'income' and 'growth' investments, it is still possible to get attractive returns elsewhere.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.