Monthly archive for September, 2014

The Investor’s Guide to Kick Out Plans

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It seems that regardless of the prevailing economic conditions, the kick out investment continues to be a popular choice with investors. Although not yet a mainstream investment when compared with investment funds, the defined return and defined risk on offer from this fixed term investment seems to make them particularly sought after when the market is at historically high levels and investors are finding it difficult to commit. We take a closer look at the kick out plan to try and understand why their popularity has continued to rise in recent years. We also consider how this might make for an attractive opportunity in the current investment climate as well as review some of the recent market trends.

Kick out investments hitting the mark

The defined return for a defined level of risk has made the structured investment an attractive addition to the range of investment options available, whilst in recent years the kick out plan has been the stand out of this type of investment in terms of popularity. Capable of adapting its structure in line with market conditions and investor demands, the inherent flexibility in how these plans can be put together is perhaps one of the main reasons for their continuing popularity, seemingly hitting the mark with a wide range of investors.

What is a kick out investment?

Kick out investments, or ‘autocalls’ to use the correct investment term, are fixed term investments that pay out a defined return providing a predefined event takes place. This predefined event is linked to the performance of an underlying investment, often a stock market index such as the FTSE 100 or sometimes a small number of FTSE 100 listed shares. If this ‘trigger’ event occurs, the plan automatically matures early or ‘kicks out’, returning your original capital along with the defined returns offered at the outset. Should this event fail to occur, the plan keeps going to subsequent trigger anniversaries or until the end of the fixed term.
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Top 10 Tips for ISA Savers and Investors

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With the halfway point in the tax year upon us, why not take this opportunity to review your ISA planning whilst you still have plenty of time to do so. We can all be guilty of leaving things to the last minute and since the changes to the ISA rules give us all a significantly increased allowance, this really should be a top priority for all savers and investors to carefully review any existing ISAs as well as the range of options open to them. To help you act and act fast, our head of savings and investments, Oliver Roylance-Smith, has put together his Top 10 ISA tips, so there can be no excuse for missing out on valuable tax-efficient returns well before the end of the tax year…

Tip 1 – Maximise your ISA allowance

Recent changes to the ISA rules which took effect on 1st July mean that your ISA allowance for 2014/15 tax year is now £15,000, making this latest increase to the ISA allowance the largest since ISAs were introduced in 1999. Remember that this allowance is per person, so a couple can invest up to £30,000 in total this tax year. We will have to wait until the Autumn Statement to find out if the ISA allowance will increase for the next tax year but on the assumption that it at least stays the same, that’s a total of £60,000 between a couple that could be invested in ISAs in a little over six months.

Since the changes to the ISA rules took effect, we have seen many new and existing customers putting the maximum £15,000 allowance into their ISA, clearly seeing the importance of keeping any income and growth from the tax man/ keen to make the most of this valuable tax break.  Remember though that this latest increase to the allowance includes any ISA contributions between 6th April 2014 and 30th June 2014.
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Monthly income investment selections

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Whether investing inside or outside of an ISA, the hunt for income remains a top priority for many investors, as evidenced by the number of our existing customers and those new to Fair Investment looking for income solutions. With the frequency of payments one of the most important features for many income seekers, we have put together a selection of our most popular monthly income investments. We also give you our in-house view of each from Oliver Roylance-Smith, our Head of Savings and Investments. For those who are yet to use their ISA allowance, all of the investments featured are also available within an ISA so you could benefit from tax free income.

Income a top priority

Whether you are an experienced investor or new to saving for the future, those needing income from their capital covers a wide range of scenarios, some of which may apply to you right now:

  • I am working and need to supplement my income
  • I am retired and need an income from my savings
  • I have an instant access Cash ISA but the level of interest has dropped significantly
  • I have an Investment ISA that is not yielding what it used to
  • I have a maturing fixed rate Cash ISA and the equivalent rate for the same term again is significantly lower
  • I am struggling to find a fixed and regular income from my capital which is competitive

Both savers and investors

With cash continuing to offer record low rates, even if you tie yourself in for the longer term, many savers are being driven to join income investors in the hunt for higher yields. What is clear is that regardless of the prevailing economic conditions, income remains a top priority for both savers and investors.

Although many income investors have historically looked to UK Equity Income funds to provide an
income, with typical yields on these funds currently under 4%, this may not be providing the level of income required and investors may well be questioning whether capital growth will do enough to boost their overall returns.

Monthly income

When reviewing the options available, those seeking income from their capital often take into consideration the level of income on offer, the frequency of payments as well as the overall risk versus reward offered by the investment. But with equity funds only offering quarterly income at best and many only paying twice each year, monthly income investments have an obvious appeal for those after a regular income.

Our selections

Our selection of income investments is based on the main features investors usually look for when it comes to finding the best income opportunities available. From high levels of fixed income paid regardless of the performance of the stock market, to high yielding bond funds which diversify your investment across a large number of holdings, all of them have one thing in common – monthly income.

5.40% p.a. fixed income, Investec Enhanced Income Plan

The Enhanced Income Plan from Investec continues to be one of our best sellers for those investing both inside and outside of an ISA. One of the main appeals for income seekers is that the income is fixed and therefore paid to you regardless of the performance of the FTSE – you therefore know exactly how much you will receive, when and for how long. The annual income is currently 5.40% (paid as 0.45% each month) which is high when compared to typical yields currently being paid by UK equity income funds. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.

Fair Investment view: “5.40% tax free income (if held in an ISA) is the equivalent of 6.75% taxable income for a basic rate tax payer and 9.00% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan offers a competitive balance of risk versus reward that could be considered by both savers and investors.”
Click here for more information »

7.20% p.a. fixed income, Meteor FTSE 5 Monthly Income Plan

The second income plan in our selection also offers a fixed income, paid to you regardless of the performance of the stock market. The FTSE 5 Monthly Income Plan from Meteor offers 7.20% annual income, paid as 0.6% each month. This level of income is significantly higher than Investec’s plan, one of the main reasons being that the return of your initial capital is dependent on the performance of five FTSE 100 shares rather the Index as a whole. Should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “The fixed income on offer equates to a total return of 43.2% over the term of the investment and if you invest within an ISA, the 7.20% fixed income is equivalent to 9.00% p.a. for basic rate tax payers and 12.0% p.a. for higher rate tax payers. This investment might well appeal to income investors looking for a high level of fixed and regular income however, the fact that the return of your initial capital is based on the performance of five shares rather than the Index as a whole should be a key consideration.”
Click here for more information »

6.40% yield, Threadneedle High Yield Bond Fund

This fund was launched in 1999 and is now almost £800 million in size. At 6.40%, the fund currently has one of the highest distribution yields* in the high yield sector and the monthly income frequency seems to be the favoured choice for our income investors, especially those looking to supplement income. The fund is managed by Barrie Whitman (since launch) and David Backhouse and has the simple aim of providing income. The fund invests at least two thirds of its assets in high income paying bonds issued by companies worldwide with the top three sector holdings covering media, services and telecommunications.

Fair Investment view: “The total number of bond issuers in the fund is currently 162 and the fund has produced a cumulative return of 7.4%, 23.3% and 56.9% over the last one, three and five years respectively. The high yield is achieved by investing predominantly in sub-investment grade bonds which are considered riskier than higher rated bonds but typically pay a higher income and so investors will experience some volatility. The fund is well diversified and is currently overweight in both banking and the European high yield market. The fund is Bronze rated by Morningstar OBSR.”
Click here to find out more and to apply »

4.60% yield, Invesco Perpetual Monthly Income Plus fund

Invesco Perpetual’s Monthly Income Plus fund has been popular with income investors for many years. Launched in 1999, the current management is split between Paul Causer, Paul Read and Ciaran Mallon who together have secured a Morningstar OBSR Silver rating. Now almost £4 billion in size, the aim of the fund is to achieve a high level of income together with capital growth over the long term by investing primarily in corporate and government high yielding debt securities globally as well as equities (up to maximum of 20%).

Fair Investment view: “Of the 382 current total number of holdings, just under 40% are with investment grade institutions with 16.75% of the fund invested in equities. The fund has produced 7.30%, 35.42% and 64.54% over the last one, three and five years respectively, outperforming its sector by some margin. It has a current distribution yield of 4.60% which is relatively low compared to the funds historical performance however the fund continues to be very popular with income seekers.”
Click here to find out more and to apply »

Investment funds

The two funds featured are open-ended collective investment funds which offer investors the ability to pool their money with others in order to invest in a large number of holdings, thereby diversifying their risk and accessing a far greater spread of holdings than would be available if investing directly. This offers savers another way of gaining access to the potential for higher income than available from cash.

Investment plans

The two fixed income investments are fixed term investment plans. These are an alternative to open ended investment funds, offering a defined return for a defined level of risk, thereby giving investors a further option to achieving income for their capital.

Investment plans versus investment funds

It is important to remember that income yields from investment funds are not guaranteed and are therefore subject to fluctuations. In addition, the treatment of your capital is different –fixed term investment plans contain what is known as conditional capital protection which means your initial capital is returned at the end of the plan term unless the underlying investment (either the FTSE 100 Index or five shares listed on the Index) has fallen by 50% or more. With investment funds your capital is fully at risk on a daily basis albeit your investment is spread across a large number of holdings, thereby diversifying the impact of one bond issuer failing.

Understanding how and when income is paid, as well as the treatment of your initial capital over time, are important considerations. The income yield as well as any rise or fall in the value of your original capital should always be considered together since both have an effect on your overall return. For example a 7% income yield might be compelling in its own right but not so if it coincides with a 7% reduction in the value of your capital. However, the total return can also work in your favour if capital growth is positive.


Click here for more information about the Investec Enhanced Income Plan »

Click here for more information about the Meteor FSTE 5 Monthly Income Plan »

Click here to compare monthly income funds »

 

*  the distribution yield reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the Fund’s net asset value per share as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any initial charge and investors may be subject to tax on distributions.
Past performance is not a guide to future performance.
All fund data correct as at 31/07/2014. 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made.

The investment plans detailed are structured investment plans which are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to future returns.

New Investment ISAs see record inflows

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The latest HMRC figures for the 2013/14 tax year show that although there were fewer subscriptions into ISAs overall compared with the previous tax year, numbers into Stocks & Shares ISAs have grown significantly. We take a closer look at the numbers as well as find out which investments have been the winners from this shift in ISA behaviour and what this could mean for the New ISA going forward.

Low savings rates set the scene

With the Bank of England base rate held for another month at 0.5%, whatever the speculation around future interest rate rises, the facts remain that this record low is now in its 66th consecutive month and the savings rates available from Cash ISAs are still at pitifully low levels.

Figures released at the end of August by the Bank of England showed the rates on Cash ISAs have fallen significantly since 2012 and the introduction of the Funding for Lending Scheme. In July 2012, Cash ISAs offering a bonus paid an average rate of 2.57%% whilst today they pay just 1.18% on average – less than half what they used to. For Cash ISAs not paying bonuses the rate has fallen from 1.41% to 0.86% over the same period, a fall of almost 40%.

Fixed rates failing to inspire

And it’s not only easy access accounts that are failing to inspire savers. Top one and two year fixed rate Cash ISAs are paying around 1.70% and 2.0% respectively whilst leading 3 year fixed rate deals top 2.50% and for a 5 year term you might get 2.80%. The good news is that with inflation currently running at 1.6%, all of these fixed rates are inflation beating, but the ISA figures show us that this is clearly not enough for savers and investors looking to the longer term.

ISA numbers down, Investment ISAs up

The end of financial year ISA statistics from HMRC show that overall subscription numbers into ISAs has fallen year on year. Between 6th April 2013 and 5th April 2014 there were a total of 13,473 ISA subscriptions, down from 14,606 made during the previous tax year. With such historically low savings rates it is hardly surprising that the number of ISAs is down with Cash ISAs historically being the more popular of the two ISA options.

However, although the number of ISAs has fallen, the above statistics show that savers are putting more money away than ever before. The average amount invested in a Cash ISA rose from £3,501 last year to £3,704 this year, and the amount saved into Stocks and Shares ISAs increased from £5,629 to £6,163 over the same period, the latest ISA subscriptions revealing more investors have been allocating towards stocks and shares than buying into cash.

Savers put record amount in stocks and shares ISAs

According to the latest figures from the Office of National Statistics, the total assets invested into Stocks and Shares ISAs were a record £18.4bn in the 2013-14 tax year with £38.8bn in Cash ISAs, a change in attitude from 2012-13 when £40.9bn was subscribed into cash ISAs and £16.5bn was held in Stocks and Shares ISAs. This equates to an 11.5% increase on the investment side versus a 5.4% increase for Cash ISAs, over double the increase.

The environment of low cash ISA rates failing to meet the needs of many ISA subscribers has boosted stocks and shares ISAs to a record year of investment and the increase in average subscriptions to record levels shows not only the importance that UK savers and investors put on tax-free ISAs, but also that they are increasingly realising that this valuable tax break can be better used.

New ISA changes mean the trend is likely to continue

Since 1st July 2014, the key changes to ISAs are as follows:

  • All existing ISAs become New ISAs
  • New ISA allowance of £15,000
  • Allocate up to the full allowance in either cash or stocks & shares (investments), or a mixture of both
  • Freedom to transfer from cash to stocks & shares and vice versa (Stocks & Shares ISA to Cash ISA previously not permitted)

The continued poor savings rates and improved confidence in the markets, combined with the higher ISA allowance and greater transfer flexibility suggest that this trend will continue throughout the current tax year and beyond.

Confirmation that savers are looking to investments

Indeed, those who have half an eye on a potential interest rate rise may not want to lock into a fixed rate ISA in the short-term and what these latest figures confirm is that more savers are looking towards investments. As many banks cut their rates to deter attracting new savers and slash rates for existing customers coming to the end of their initial deal, it is the shorter term rates that are proving most uncompetitive as the prevailing market brings with it an ISA dilemma for many savers – either lose money in real terms from a savings account, or take on more risk.

This difficult question of taking on more risk to try and combat the effects of inflation and realise competitive returns over and above inflation is one which more and more savers are facing. Obviously putting your capital at risk is something which you should consider very carefully indeed, particularly if you are considering this for the first time with some of your Cash ISA savings or new ISA money.

Our Top 5 most popular plans for ISA investors

Here at Fair Investment Company we have also seen a rise in the number of investment plans being used by ISA savers and investors on the back of a very busy summer. With this in mind, here is our Top 5 investment plan selections based on our most popular plans with both existing and new investors:

  • 5.40% fixed income, monthly payments with capital at risk based on the performance of the FTSE 100 Index Investec Enhanced Income Plan » This is our most popular income investment and the best selling investment for those using the full £15,000 New ISA allowance
  • 7.20% fixed income, monthly payments with capital at risk based on the performance of five FTSE 100 shares Meteor FTSE 5 Monthly Income Plan »  This is our second most popular income investment.
  • Potential yield up to 9% each year with quarterly payments, capital at risk based on the performance of four FTSE 100 shares Focus FTSE 4 Quarterly Income Plan »  This is one of our most popular investment plans overall.
  • Potential 10.25% annual growth (not compounded) and early maturity from year 2 onwards, capital is at risk based on the performance of the FTSE 100 IndexInvestec Enhanced Kick Out Plan »  This is best selling growth investment plan and the most popular investment for ISA transfers.
  • Potential 7.50% annual growth (not compounded) even if the FTSE falls up to 10%, capital at risk based on the performance of the FTSE 100 Index Investec Defensive Kick Out Plan »  The third entrant from Investec offers a defensive element and is one of our most popular investment plans overall.

Don’t miss out

Recent research suggests that more than one in every four adults in the UK (26%*) is paying too much tax on their savings and investments. With as many as 12.5 million adults failing to make use of a tax-efficient ISA with their hard earned money, they could be losing out by paying tax unnecessarily. Putting money in an ISA is one of the simplest things to do to protect your money from the taxman and with the new ISA rules resulting in an increased allowance and increased flexibility, making sure you don’t miss out should be a top priority.


Click here for more information about the Investec Enhanced Income Plan »

Click here for more information about the Meteor FTSE 5 Monthly Income Plan »

Click here for more information about the Focus FTSE 4 Quarterly Income Plan »

Click here for more information about the Investec Enhanced Kick Out Plan »

Click here for more information about the Investec Defensive Kick Out Plan »

* NFU Mutual, June 2014.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future.

These are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index or shares listed within the Index. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. As share prices can move by a wide margin, plans based on the performance of shares represent higher risk investments than plans based on the FTSE 100 Index as a whole. The past performance of the FTSE 100 Index or shares listed within the Index is not a guide to their future performance.

Top 10 reasons why kick out plans are proving so popular

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Kick out plans have the ability to mature early or ‘kick out’ based on the performance of an underlying investment, often the FTSE 100 Index. So while many savers and investors find it difficult to commit their capital when stock markets trade at historically high levels, kick out plans can provide investment level returns if the market stays relatively flat, or even if the market goes down, and so have proved particularly popular in the current investment climate.

They are available as a capital protected deposit, or a capital at risk investment and as such have become popular with both savers and investors. With their popularity continuing to rise, we give you our Top 10 reasons to consider this type of plan.

1.    Defined return v defined risk

With kick out plans the potential returns on offer as well as what needs to happen to provide these returns is known before you commit your capital – a defined return for a defined level of risk. The investor therefore has the benefit of knowing at the outset the conditions that need to be met in order to provide the stated returns, which can then be used to make an informed decision about whether to proceed or not by comparing with alternative investments as well as the returns available from cash savings.

2.    Early maturity

The term ‘kick out’ refers to the ability of the plan to mature early depending on the movement of the underlying investment, often the FTSE 100 Index. Plans that have the ability to mature early and provide a competitive return on your capital have proved popular with investors in all types of markets

The fact that investors can achieve investment level returns even if the market stays relatively flat could also be why this investment has proved particularly popular while the FTSE remains at historically high levels.

3.    Potential for high returns

In addition to the opportunity for early maturity it is no doubt the potential for high returns that have added to the popularity of kick out plans. With returns of up to 10.5% for plans linked to the performance of the FTSE 100 Index, the opportunity for double digit returns, even if the market stays relatively flat, has an obvious appeal. Note that the headline return is not compounded, but will be paid to you for each year the investment has been in place.

For those looking for the potential for higher returns, there are also plans linked to the performance of more than one Index, for example the FTSE 100 and the S&P 500, or linked to the performance of a small number of shares. The rule of thumb here is the greater the potential reward, the greater the risk to capital.

4.    Potential to beat the market

Most kick out plans will mature early if the level of the FTSE (or other underlying investment) at the end of each year is higher than its value at the start of the plan, with the end of year value sometimes subject to some sort of averaging such as the average of the last five days of trading. This means that even if the FTSE has only gone up by a small amount, you would still receive the full growth rate thereby offering the opportunity to outperform the market. If the plan produces a return your initial capital is returned to you in full along with the growth payment.

5.    ‘Defensive’ plans

In addition to those investments which kick out in the event that the FTSE (or other underlying investment) is higher at the end of each year, there are also plans that will still provide investment level returns even if the Index falls slightly, thereby catering for varying investor views of what will happen to the stock market in the coming years. With the FTSE at historically high levels, this has proved to be a popular feature.

6.    Some capital protection from a falling market

Your original capital is returned if the plan kicks out but should this not occur, typically your capital will be returned provided the FTSE has not fallen below 50% of its value at the start of the plan. To put this into context, based on this morning’s opening value of 6,825.3, the Index would have to fall to a closing level of 3,412.7 before your capital would be at risk, a level not seen since the middle of 1995. However, if it does fall below 50% you could lose some or all of your initial capital. Please also remember that past performance is not a guide to future performance.

7.    Fully capital protected options

This type of plan is also available with full capital protection, thereby offering the potential for returns which are higher than those currently available from the more traditional fixed rate bond as well as Financial Services Compensation Scheme eligibility up to the prevailing deposit limits (currently £85,000 per individual per institution). However, it should be remembered that unlike fixed rate bonds the returns on these are not guaranteed.
Click here to compare capital protected kick out plans »

8.    No annual management charges

Unlike investment funds, the charges for creating and managing kick out plans are already taken into account so there are no annual management charges which come out of the headline return. The costs associated with the management of funds happens each and every year (in both actively managed and tracker funds), which may help to explain the number of funds which fail to outperform the FTSE 100 Index or other benchmark, especially over a five year period. This ongoing cost is not a feature of kick out plans. Most kick out investments will though have an initial charge, normally up to a maximum of 3%.

9.    Tax efficient – New ISA friendly

In addition to non-ISA investments, all of the kick out plans offered through Fair Investment Company are available to individuals as a New ISA up to the current limit of £15,000 and will also accept transfers from both Cash ISAs and Stocks & Shares ISAs. Please note that the tax treatment of ISAs depends on your individual circumstances and legislation which are subject to change in the future.

10.  A disciplined approach

The mechanics of these investments removes the need for the investor to worry about when to come out of the market since the decision is made for them by the pre-determined market conditions required for the plan to mature. When the plan matures, the investor then has the opportunity to reassess their options.

Counterparty risk

Your investment into a kick out plans is used to purchase securities issued by a counterparty which is normally a bank. This means that your investment is held with a single institution rather than split between a number of companies (as it would be within a fund), and so the risk of them being unable to repay your original investment along with any stated returns becomes a factor to consider – this is known as counterparty risk. Since the counterparty is usually a bank, the credit rating is normally available so a view can be taken on the potential risk involved. There are also plans which aim to reduce this counterparty risk by spreading it across a number of institutions.

Fair Investment view

Commenting on kick outs as a potential plan to consider, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “With markets continuing to make investors think very carefully before committing their capital, kick out plans have proved to be a popular choice by offering an often compelling balance of risk v reward”.

He continued: “Although they should be considered fixed term plans, the opportunity to mature early, sometimes in as little as 12 months, is clearly an appealing feature for both savers and investors. Combined with the investment level returns on offers, even if the market stays relatively flat or even goes down, and it is understandable why this type of investment could be seen as an attractive opportunity in any investment climate, but especially when markets continue to trade at historically high levels.”

Current market offering

Kick out investment plans offer the potential for high returns balanced with conditional capital protection and the current market covers a wide range of counterparties, collateralised versions and ‘defensive’ plans which aim to reflect the prevailing market conditions. This gives a variety of plans from a number of different providers allowing the investor plenty of choice.

Click here for the latest kick out investments »

Click here for the latest kick out deposit plans »

Experienced investor section

We also have a number of kick out investments for our existing customers and those more experienced investors where you will find a range of dual Index plans which offer a higher risk versus reward, with current headline returns of up to 30% annual growth.

Click here for our experienced investor section »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may change. Make sure you check whether any charges apply prior to transferring any existing investment.

Different types of investment carry different levels of risk and may not be suitable for all investors. Some structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to their future performance.

August’s Plans of the Month

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Here we bring you the second of our new series of monthly round ups on what we consider to be our plans of the month across both savings and investments. The plans featured are spread across five different categories, two capital protected savings plans and three investment plans, thereby covering both savers and investors as well as new and existing visitors to Fair Investment

Categories

As a reminder, the five ‘Plan of the Month’ categories are as follows:

  • Income investment
  • Growth investment
  • Kick Out investment
  • Savings alternative
  • Fixed rate bond

From a fixed rate of return and capital protection, to putting your capital at risk for the potential of double digit growth returns, these five categories have been selected to cover a range of options for both savers and investors, seeking either income or growth.

Criteria

The criteria used include the rate or headline return on offer, the number of potential customers who have requested information, the number who have actually taken out each plan as well as plans that have shown innovation within the market or have unique features which make them comeplling. Since the best plans are often only open for a relatively short period or can have their interest rate changed quickly, the plans included must also either be available at the time, or we are shortly due to launch a new version.

Our view

We also give you our own view of each plan, brought to you by our Head of Savings and Investments, Oliver Roylance-Smith. Here we give you an independent view as well as try to help you understand what might be making the plan so popular, whether this is the return on offer or a particular feature.

Augusts’ Plans of the Month

With the New ISA rules in full swing, savings rates starting to show signs of moving up and an interest rate rise looking unlikely this year, this has been a busy month with high levels of activity across all five categories.

 

Income investment Plan of the Month – 5.64% fixed income

The Enhanced Income Plan from Investec has been a consistent performer for some years and is rarely shifted from being one of most popular income investments. The current issue paying a fixed annual income of 5.64%, with payments of 0.47% each month paid to you regardless of what happens to the FTSE 100 Index. Capital is at risk if the Index falls by more than 50% during the investment term. If it does, and the FTSE also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.

Fair Investment view: “Knowing exactly how much you will be paid, when and for how long are clearly features which have struck a chord with both savers and investors and the monthly payment frequency is a popular feature. With future dividend yields from UK equities under pressure and any rise in interest rates expected to be slow and limited, now might just be the time to consider a high fixed income and without the need to pay tax if held within an ISA, this plan also offers an attractive opportunity to use your New ISA allowance to receive a fixed and regular tax free income.”

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Growth investment Plan of the Month – returns even if the FTSE falls up to 10%

The FTSE Defensive Supertracker from Morgan Stanley retains its status as Growth Investment Plan of the Month, mainly due to its defensive view on the FTSE proving to be popular with investors. The plan tracks the FTSE 100 Index between the start date and end date, and then multiplies any growth by 3.1. The defensive feature of this plan is that the growth is based on any rise above 90% of the FTSE’s starting value – so, for example, if the FTSE fell 5% you would still receive a 15.5% return (5% x 3.1), and if it rose by 5% you would receive a 46.5% return (15% x 3.1). The maximum return is capped at 62% of your initial investment.

If the FTSE has fallen by 10% or more at the end of the term, no return will be paid. You initial investment is returned in full unless the Index has fallen by 50% or more at the end of the term. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.

Fair Investment view: “This plan could appeal to investors whether you think the FTSE may fall slightly, stay the same, or rise in the coming years but not significantly. With defensive plans proving popular in the current market, by receiving over three times any rise in the Index the plan also offers investors the opportunity to beat the stock market.”

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Kick-Out investment Plan of the Month – Potential 10.5% annual growth

The increase to a potential 10.5% from the current issue of the Enhanced Kick Out Plan from Investec has helped it retain its position here for a second month. The plan will return a market leading 10.5% per year (not compounded) provided the value of the FTSE 100 Index at the end of each year (from year 2 onwards) is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Your initial capital is at risk if the Index falls by more than 50% during the term and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.

Fair Investment view: “Knowing how to invest when the FTSE is high continues to be a challenge for investors, but the potential for high returns as early as year 2, even if the FTSE only rises by a single point, perhaps helps to explain why this is one of our best selling plans with both growth investors and those looking for New ISA and ISA transfers ideas. The 10.5% headline is the highest for a kick out based on the FTSE.”

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Savings alternative Plan of the Month – Potential 5.5% p.a. growth

The Kick Out Deposit Plan from Investec is a new entrant in this category and is aimed at savers who are prepared to tie in for the longer term but who would also like the opportunity for their plan to mature early. The return on offer is a potential 5.5% per year (not compounded) and the plan will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan (subject to averaging) – even by just one point. That’s a potential 16.5% after 3 years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.

Fair Investment view: “Our leading 3 year fixed rate bond is paying 2.70%, with lower rates available for fixing within a Cash ISA.  So if you’re looking for new ways to use your savings and are prepared to sacrifice a guaranteed return, this plan could provide over double the current fixed rates on offer.”

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Fixed rate bond Plan of the Month – 2 Year Fixed Term Deposit, 2.35% AER

With all the talk around a potential interest rate rise, for those prepared to tie up their money for a fixed period a two year timeframe is a popular choice. The fixed rate of 2.35% AER available from Investec’s 2 Year Fixed Term Deposit is market leading, which of course helps to explain it featuring in Augusts’ selections. Interest can be paid annually or monthly, it can be set up as a single or joint account and access to account information is online or via telephone. You can apply online and as with most fixed term accounts, no early withdrawals are permitted.

Fair Investment view: “The minimum deposit of £25,000 is relatively high but increased minimums have become more common in order to secure the highest rates and the 2.35% AER available is currently market leading. With inflation slowing to 1.6% for the year to July, the rate has been popular with savers looking for a fixed return but who also have half an eye on what might happen to interest rates in the next few years.”

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Click here for more information about the Investec Enhanced Income Plan »

Click here for more information about the Morgan Stanley Defensive Supertracker Plan »

Click here for more information about the Investec Enhanced Kick Out Plan »

Click here for more information about the Investec Kick Out Deposit Plan »

Click here for more information about the Investec 2 Year Fixed Term Deposit Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Always check whether any charges apply on transfer and remember that the preferential tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future.

The alternative savings option referred to in this article is structured deposit plan that is capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial capital and any stated returns. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

The investments referred to are structured investment plans and are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index and any of its shares is not a guide to their future performance.

AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.