What is a structured Kick Out ISA?
A Kick Out (sometimes referred to as an Autocall) is a popular feature with structured products. It provides the opportunity for the product to mature early if certain conditions are met.
So, if you have a structured ISA with a term of 6 years linked to the FTSE 100 index, the product might pay out after only 3 years if the FTSE 100 performs particularly well.
Kick out features are mostly commonly offered with structured investments where the original deposit is not protected. They can also function as a way of limiting potential loses where the product is designed to kick out if the linked index drops below a certain level.
How structured Kick Out ISAs work
The performance of the index is usually defined as a percentage of its value on the day the product term starts. An assessment will normally be made as to whether the product will pay out early each year on the anniversary of the product’s start date. The amount that the product will pay out will normally be defined at the start of the product term.
For example, you might have a structured investment ISA linked to the FTSE 100 with a term of 6 years. The terms of the kick out might state that if the FTSE 100 is above the level it was at on the product start date on the anniversary of that date, the original investment will be returned, plus 10% for each year since the product started.
So, if this happens one year into the product term, the investor would get their original capital back, plus 10%. After 2 years, it would be their original capital, plus 20% and so on. The assessment of the level of the index is usually based on its closing performance for the last 5 business days before the anniversary date.
Why use a structured Kick Out ISA
One of the main advantages of a structured kick out ISA is that they can pay out, even if the linked index has not performed particularly well. For example, even if the FTSE 100 has only increased by 1%, investors could still earn a return of 10%.
However, it is worth bearing in mind that if the index performs particularly well, you could end up earning less than the increase in the value of the index e.g. even if the FTSE ends up 20% higher than when your investment began, you will still only receive 10% back.
This can be a good option for those who want to increase their chances of earning a good return and who don’t mind the risk of missing out on potentially bigger returns if the market performs particularly well.
How to choose a structured Kick Out ISA
Out ISA comparison tool, found at the top of the page, allows you to quickly compare and contrast different ISA products from all the leading providers across the market. This allows you to easily weight up their various benefits so you can find the right investment product for your financial circumstances and investment aspirations.