Structured product provider Keydata has launched an enhanced version of its Extra Income Plan, offering significant tax benefits and the ability to hedge against falling markets.

The plan offers investors a choice of either income or growth. The income option pays a quarterly income of 2.075 per cent gross – equivalent to 8.3 per cent gross per annum – over a six-year investment term, with the growth option returning 58.5 per cent growth at maturity.

The return of capital is linked to the performance of the FTSE 100 and Dow Jones Euro Stoxx 50 indices.

Capital is fully protected unless either index falls by 50 per cent or more during the term. If this happens, and either index subsequently fails to return to their respective starting point by the end of the term, capital is reduced on a one-for-one basis, in line with the worst-performing index.

Keydata believes the plan offers an attractive way for investors to hedge against possible market falls since income or growth payments are not linked to market performance.

Mark Owen, director of sales and strategy at Keydata, says, ‘The value of structured products is that they offer a surety of income or growth and a clear formula for the value of the investment at maturity.

‘If income investors believe that stock markets could fall by more than 50 per cent over the next six years then they should be entirely invested in cash. If not, then the Extra Income Plan gives them a simple solution to their income requirements and an easy way to hedge against short-term market falls.’

Keydata has used a new structure for this issue. Income on the plan is treated as dividends for tax purposes, which greatly reduces the potential tax liability.

Basic-rate taxpayers are taxed at a rate of ten per cent, with a tax credit that reduces the effective rate to zero per cent. Higher-rate taxpayers are taxed at a rate of 32.5 per cent, with a tax credit that reduces the effective rate to 25 per cent.

Growth investors also benefit since tax is only paid on growth that exceeds the capital gains tax allowance (currently £9,200) at a flat rate of 18 per cent. The Extra Income Plan can also be bought as a stocks and shares ISA or within a SIPP or SSAS pension scheme.

The plan is open for investment until 22 August 2008, and the deadline for ISA transfers is 1 August 2008. For more information, visit www.keydata.co.uk