Tracker Bonds

Tracker bonds give investors access to the potentially higher returns that stock markets provide but without the risks normally associated with similar investments.

How Tracker Bonds work

A Tracker Bond is a fixed term investment generally over three to six years. Most trackers offer capital protection that investors will get some or all of their money back at the end of the investment. Some trackers offer an option where you can choose to get a lower percentage of your money back (for example 90%), but this offers you the potential of higher returns. The return you can achieve on top of that is usually based on the performance of some stock market index or mix of indices

The following are key factors in deciding which Tracker Bond to invest in:

Does the term suit your timescale?

You can choose an investment time frame between 3 and 6 years to suit your particular requirements. Because you have no access to your funds, you need to be certain that the investment time frame meets your needs.

Capital Protection:

Do you require full capital security at the end of the investment (so 100% of the original amount is safe at the end of the investment term)? If so look for a bond that gives a 100% capital protection. This means that no matter what happens in the stockmarkets you will get back at least your original investment amount. Some bonds give 80% or 90% capital security which means that your maximum capital loss risk could be 10% or 20%.

The level of return:

Some trackers give you 100% of the potential returns achieved by the markets being tracked but they have a cap on the maximum return you can achieve. For example you may get 100% of the growth with a maximum return of 30%. Other Trackers give you 50% or 60% of whatever growth takes place in the markets being tracked with no limit on the potential returns.

It is important when comparing the level of stockmarket growth offered by trackers to compare the term of the individual trackers. For example a tracker bond with a 6 year term should offer a significantly higher level of stock market growth than a 4 year term to reward you for investing over a longer period.

Clear Tracker 4 booklet

Tracker Bonds may suit you if you:

• Are prepared to invest a lump sum for a set time frame without access to immediate withdrawal of your money
• Want to protect all or most of your investment; and
• Are happy to settle for potentially lower returns than you could achieve by investing without capital protection.