HAVING seen the UK market decline for more than three years, potential investors could be forgiven for feeling less than enthusiastic about investing money in the market.

The prospect of possibly watching the value of your investment melt away is enough to make anyone think twice before buying shares.

If, however, you were to have purchased shares between March 2003 and March 2004, the story would have been very different. During this period, many companies saw their share price double relatively quickly, with some smaller company shares actually achieving between a five and ten-fold increase.

It is obvious, therefore, that there is a great deal of money to be made from buying shares, although it is far from easy to pick those few winners that are going to make you the kind of return most investors can only dream about.

But what if it were possible to buy shares which would allow you to benefit from the potential upside in the market, without the worry of any downside risk. It may sound too good to be true, but it is exactly what a new class of shares recently released into the market is offering.

After perhaps sensing the worries of private investors, Merrill Lynch has introduced a range of capital protected products, which offer participation in the growth of a given index, with no risk of loss.

Although this kind of share is a fairly new phenomenon, the idea of a so-called synthetic portfolio is not. This is based on the clever use of index options, which allows the holder to benefit from the rise in the market, with only the relatively small premium paid for the option at risk. The idea is not to buy the underlying shares, but to have the right to buy them, if it is beneficial to do so.

What Merrill Lynch does is take the initial 100p a share it receives on subscription, and deposits the money across five high quality banks. It then uses the interest the banks pay to buy index call options, similar to those mentioned above. At the end of the fixed period, the original money received at the beginning is still safely in the bank.

The one product which stands out, and which I believe will be the most suitable for many first-time investors, is the UK Secured Growth Shares 2010. These shares offer a 70 per cent participation in the growth of the FTSE 100 Index, with a guaranteed return of 120p per share. The shares, which are available through any broker, who will charge their usual commission, are designed for investors looking to gain a fixed rate of growth, irrespective of the performance of the FTSE 100 Index, while still having the additional returns linked to the growth of the FTSE 100 Index.

As investors are guaranteed a minimum return of 120p a share, this equates to a gross redemption yield of 3.26 per cent, based on the subscription price of 100p a share. The full amount received on redemption would also be tax free, providing this was within the private investor's annual CGT allowance.

While at one time, investors may have had to accept that shares could go down as well as up, it now looks as if this is no longer strictly true. These new shares seem to offer something slightly different. The gain, with none of the pain.

* Michael Rankin is an investment manager in the Teesside office of Wise Speke and can be contacted on (-1642) 608855. Views expressed are the author's own and are not necessarily held throughout the Brewin Dolphin Group. Wise Speke is a division of Brewin Dolphin Securities Ltd, a member of the London Stock Exhange, authorised and regulated by the Financial Services Authority. Prices, values or income may fall against investor's interests. You should therefore be aware that you may get less back than you invested. Investments may not always be suitable for all individuals. If you have any doubts, you should consult a professional advisor.

Published: 17/08/2004