Over the last two years Stock Markets haven't provided a great deal of encouragement for private investors. Many have seen the value of their Shares, Personal Equity Plans and Unit Trusts decline considerably and have been left facing massive losses.

Their appetite to take advantage of ISA limits before the end of the last tax year was almost non-existent. Investors already low on their luck elected to keep the majority of their capital in cash holdings. The basis for their decision was not to attract a great return, but not to lose their money.

Creativity!

Investment providers have had to be creative in order to attract new business and, in the last couple of months, an old favourite has found its way back into the market place – Stock Market Investments with guarantees linked to the amount of your capital and/or returns.

These investments don't tend to be on offer all the time but, as they are available at the moment, the wise investor should take a good look at what could to good an opportunity to miss!

As with any investment, investors should exercise care before jumping in. Therefore, for the benefit of our readers, we're highlighting some of the pros and cons of Capital Protected Investments.

Capital Protected Bonds

Capital Protected Bonds are investments with a set term of, say, 5 years. They offer growth, or income on your money during the term, without risk to your original investment. 

Many of these investments are linked to the Stock Market (FTSE 1000), or a group of indexes at home and abroad. At the end of the investment term the investor receives the increase in the value of the market, plus their capital back.

Basic rate income tax is paid within the investment and higher rate taxpayers will only have to meet the difference between the two. This means that most people will not have any further tax to find when the bond matures. Capital Protected Bonds don't normally have up-front charges when you invest your money.

Growth

Many of these investments offer a share of the growth in the market. Care should be taken to avoid companies that offer only a small percentage of the real return. For example, one company is currently offering only 45% of the return in the FTSE 100 over the 5-year term. This means they keep 55% for themselves, which is obviously poor value for the investor. Investors should look for Capital Protected Bonds that offer up to 100% of the growth in the market. There are companies offering bonds that will give a return of between 70% and 100% of the FTSE 100 index, without any of your initial capital placed at risk. 

Income

There are also a number of Income Bonds that offer guaranteed rates of return over the term of the bond. These give fixed rates of interest either on a monthly, quarterly or annual basis.

Many of these products offer to protect your capital – providing certain markets do not decline during the life of the investment. You should look for an Income Bond that offers the least amount of 'STRINGS' possible within the guarantee to your capital.

The conditions should be clear and make complete sense. Some of the better companies will offer a clear Guarantee to your capital that isn't dependent on Stock Market indices performing. 

Conclusion

Investing money into the Stock Market can be a risky business, but there's a new breed of investment appearing. They offer all the opportunity for sharing in any upside to the markets, but without the downside risk! 

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