A ‘Kick-Out’ Bond is an investment linked to a strategy designed to repay your initial deposit and deliver an additional return linked to an Index, such as the EuroSTOXX 50, over terms of usually 5 years. There is also the potential for the Bond to mature early; hence you are ‘kicked-out’, depending on the performance of the EuroSTOXX 50. The additional return consists of a fixed payment of say 5.25% Gross per annum (simple interest) for as long as the bond remains invested.
It works as follows: On the second anniversary of the bond, if the Index tracked is equal to or above its starting price, the bond will mature and the investor will receive 100% of their original capital plus 10.5% [2 x 5.25%]. Should the Index be below its starting point on the second anniversary, the bond will continue to the third anniversary. At that stage, if the Index is equal to or above its starting point the bond will mature and the investor will receive 100% of their capital plus 15.75% [3 x 5.25%] and the investment will mature.
Should the Index still be below its starting point this procedure is continued to the fourth or even fifth anniversary with the fixed return being paid where the Index price at any anniversary is equal to or above its original starting price. In this example, the maximum return at the end of five years would be 100% original capital plus 26.25% [5 x 5.25%].
Should the closing price on the fifth anniversary still be below the starting price, the bond will mature and the investor will receive 100% of their original investment.
These bonds provide a capital secure method of speculating on the performance of stock markets without the downside risk of direct equity investing and are suitable for those who require both capital growth and capital security.
They are not suitable for those who may need access to their capital during the investment period or for anyone who needs to take an income from their investments.