After a rocky summer for the equity markets, Barclays Stockbrokers is launching a scheme that claims to protect your capital from stock-market falls, though without the usual downsides of traditional protected plans.

Barclays claims its Investment Notes scheme is better value and more flexible than existing plans. And with one of the first notes offering 230 per cent of the growth of a basket of global stock- market indexes they sound very attractive, on paper.

Investors are being warned not to rush in. Advisers say that the headline rates being touted may not be all they seem.

For experienced investors they could offer opportunities to make decent profits at very low risk. But their complexity makes them unsuitable for cautious investors who typically buy protected plans.

Ian Lowes at Lowes Financial Management, an adviser, said: “They are best suited to sophisticated investors who are used to actively trading shares, not the novice investor who is dabbling in the stock market for the first time.”

Barclays is offering two schemes initially. The first, called the FTSE 100 Capital Protected note, is a six-year plan that offers 100 per cent capital protection if held for the full term. Investors who hold on until maturity receive 130 per cent of the growth in the index.

The second, the FTSE Global Accelerator note, is also a six-year plan but is linked to the UK, Japanese, US and European stock markets. At maturity investors will get back 230 per cent of the rise in the indexes, but with only an 80 per cent return of original capital. Barclays hopes to launch further plans later in the year, offering exposure to Japanese and commodity indexes.

What makes the schemes different from traditional protected plans is their flexibility and transparent charging structure. Traditional schemes penalise customers who want to get out before the end of the term. And if you don’t get in during the initial offer period you usually lose the chance to participate.

Barclays’ investment notes will be listed on the London Stock Exchange so you can trade in and out of them at any time, penalty free, just like normal shares. The notes will be listed on October 9.

For the next two weeks there is an initial offer period during which the minimum investment is £500. If you miss this opening period you will still be able to buy the notes by logging on to the Barclays stockbrokers website or using your own broker to carry out the trade for you.

Alternatively if you buy the notes during the offer period and decide soon after that you made the wrong decision, you can sell.

Philip Northey of Barclays Stockbrokers said: “Because the notes are listed on the London Stock Exchange investors can access and exit the scheme on a daily basis.”

The schemes also appear to be cheaper and more transparent. With a traditional protected plan, charges are built into the terms so it is impossible to know what you are paying in charges. Industry insiders say these hidden fees often equate to an entry cost of between 5 per cent and 7 per cent.

Barclays’ scheme is explicit about its charges. There is no annual fee and its initial charge is only 2 per cent. You also pay a dealing fee every time you buy and sell the plans.

Barclays Stockbrokers charges a £12 flat fee each time you deal online and if you are a regular trader that drops to £7.50.

Advisers are worried, though, that they may be too complex for many investors. The value of the notes will vary each day depending on the performance of the markets they are linked to. If you sell out before the end of the fixed term you have to accept the price on offer on the market — the capital protection only applies if you hold them to maturity.

Cautious investors are unlikely to take the opportunity to trade in and out of the notes, meaning they will be no better off than if they had bought a traditional protected plan.

The way that returns are calculated could also prove confusing. At maturity growth will not be calculated on the percentage increase between the launch and end dates. Instead, returns will depend on the average of the daily closing levels during the final 12 months of the scheme. This makes it difficult for investors to know what return they are likely to get.

The return from the FTSE Global Accelerator will also be much lower than the 230 per cent headline rate suggests because you only receive 80 per cent of your original capital back.

If you invest £1,000 and the basket of shares rises 10 per cent over the six-year term you would get back 230 per cent of 10 per cent, or £230, plus 80 per cent of your original capital or £800 — an overall return of just £30, or 3 per cent.

For more investment articles visit www.timesonline.co.uk/invest

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