Index-linked bonds | Luminor

With a stable rate of return on your investments, bonds can help you build towards a brighter future and wealthier retirement.

Why choose bonds?

Glossary

Par Value

Interest accrual is based on the par value of bonds rather than on their purchase price. The par value of bonds is guaranteed.
If you buy bonds for the price above the par value, the respective share of investment exceeding the par value is not guaranteed.
Normally index-linked bonds are issued at par value of EUR 1000.
For example, you have bought an index-linked bond and the index at maturity has increased by 30%.

  • If the bond has been purchased at its par value, the yield will be 1000 x 30% = EUR 300 or 30% of the invested funds. If the bond has been purchased above or below its par value, the yield will be still calculated from the bond’s par value, i.e. EUR 1000.
  • If the bond has been purchased for the price of EUR 1050 (purchase price is EUR 50 above the par value), the yield on investment will be EUR 300, however, the return and accordingly the profits will be EUR 50 less: 250/1050 = 23.8%.
  • If the bond has been purchased for the price of EUR 950 (purchase price is EUR 50 below the par value), the return on investment will be hight because in addition to the interest accrual you are also entitled to EUR 50 that was below the par value: 350/950 = 36.84%.

Capital Guarantee

At the maturity, investors receive 100% of the par value of the capital invested. It is guaranteed by the issuer of index-linked bonds – Nordea Bank AB.
By selecting an extra offer, you will pay a premium but it will increase your possibilities to gain potential profits at the maturity.

Participation ratio is a percentage of the index increase paid to the investor. If you have bought obligations with par value of EUR 1000 and the underlying index has increased by 30%, there may be several scenarios:
1. Participation ratio is 100%. At the bonds’ maturity date, you will receive not only the nominal investment amount, but also a 30% increment that is calculated from the par value: 1000 + (1000 x 30%) = EUR 1300.
2. Participation ratio is 70%. You will receive both the invested amount and the difference between your investment and par value of the bond: 1000 + (1000 x 30% x 70%) = EUR 1210.
3. Participation ratio is 130%. You will receive 1000 + (1000 x 30% x 130%) = EUR 1390. Normally participation ratio above 100% is only offered subject to a risk premium. In addition to the bond’s par value, the investor is required to pay approximately 10% of the invested amount.

Underlying Index

Index-linked bonds are linked to globally renowned indices such as Dow Jones, S&P, DJ Euro Stoxx etc. The underlying index and other characteristics of the bonds are described in the Final Terms and Conditions of the Bonds.

Index Closing (End) Value

The index value used for calculating the increase of the index. Normally the arithmetic mean index value over a certain period of time is applied that shields the investor from potential losses in case the index value at the bonds’ maturity is negative. For example, a bond with a par value of EUR 1000 and participation ratio of 100% is redeemed on 30 April 2010. The initial bond indexing date is 5 January 2008. The index is determined on the 20th day of the first month of each quarter over the last year:
On 5 January 2008, the underlying index value is 13 100 units, whereas on the index closing value dates respectively:

  • 5 July 2009: 13 100 units
  • 5 October 2009: 15 800 units
  • 5 January 2010: 17 900 units
  • 5 April 2010: 18 700 units
The final index value will be equal to the mean amount of values established on the indexing date. Final value = (13 100+15 800+17 900+18 700)/4 = 16 375 or 25% increment. Hence, the index increment and return for the investor comprises 25% or EUR 250. If the end value is below the initial value, the investor will receive the par value of bonds at the maturity.

Conditions

  • Minimum investment - 1 000 EUR by nominal value (or equivalent in other currencies)

Useful links

Price list 
Fund Prices and Performance 
Information for investors 
Luminor|Nordea Index-Linked Bonds​
Information about Income Tax for Individuals

See also: Term deposit, Investment funds, Brokerage services, Luminor Trade

Important!
Investments may be exposed to risk. Value of the investment throughout the investment period may decrease or increase, and the results are not guaranteed. In certain case, investor may lose all the invested amount.
This page is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Prior to concluding any financial instrument transaction, please read an overview of financial instruments and the risks related to them, and carefully consider personal financial situation and the risks involved.
The information on this page is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. This information also cannot be deemed as a consultation on investments in financial instruments in accordance with the Financial Instrument Market Law.
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