Monthly archive for May, 2015

Investment Focus: SIP Nordic FTSE 3 / FTSE 100 Defensive Kick Out Plan

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Fixed term investment plans that have the ability to mature early or ‘kick out’ each year seem to be popular whatever the investment climate, but particularly so when the stock market is at historically high levels. The FTSE 3 / FTSE 100 Defensive Kick Out Plan is an innovative new launch offering the highest rate of any kick out investment where the return of capital is based on the performance of the FTSE 100 Index. We take a closer look at the plan’s features and review the risk versus reward on offer to see why this might make for an attractive opportunity in the current investment climate.

In a nutshell

The FTSE 3 / FTSE 100 Defensive Kick Out Plan from SIP Nordic has a maximum term of five years but offers the opportunity to mature early or ‘kick out’ after 12 months, and then at the end of each quarter thereafter, dependent on the performance of three FTSE 100 listed shares. If the plan kicks out, you will receive 12% at the end of year one, or 12% plus an additional 3% for each quarter the plan has been active thereafter (not compounded). If no growth payment is achieved, the return of your capital is dependent on the performance of the FTSE 100 Index rather than the three shares and your capital is at risk if the Index falls by 40% or more below its starting value.

 ‘Kick Out’

The term ‘kick out’ refers to the ability of the investment plan to mature early which is dependent on the performance of three shares listed on the FTSE 100 Index: AstraZenica plc, Barclays plc and BHP Billiton plc. Fixed term investment plans that have the ability to mature early and provide a competitive return have proved popular in all types of markets but the fact that investors can achieve high investment returns even if the underlying investment stays relatively flat can be an appealing feature when markets are at historically high levels. This plan offers regular opportunities to kick out, initially after the first twelve months and then every three months thereafter.


The value of each share is taken at the start of the plan and is then compared to the value after 12 months, and then at the end of every quarter thereafter. Should the value of all three shares be at or above 95% of their value at the start of the plan, your investment will kick out providing a 12%  return at the end of year one, or 12% plus 3% for each additional quarter thereafter (not compounded). This growth payment is made along with a return of your initial investment. The ‘defensive’ element to the plan refers to each share being able to fall up to 5% and the plan will still provide an investment return.
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Three Monthly Income Investment Ideas

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A key aspect to consider when choosing income investments is how often income is paid out. The most common payment frequencies are bi-annually, quarterly and monthly, with the more regular frequencies usually being the most popular since monthly income can be the most useful in terms of budgeting and is attractive when looking to supplement existing income. With the recent changes to pensions putting a spotlight on ways to generate to income from capital, and while savings rates continue to force many to consider taking on more risk with their capital, we take a look at what three monthly income investments have to offer.

Putting your ‘capital at risk’ – what does this actually mean?

In order to receive the potential for income returns that are currently far higher than those available from cash, the investor’s capital is put at risk. This means that although your income will potentially be higher, whether you receive a return of your original capital is dependent on the performance of the underlying investment, which can be shares, bonds, or a major index such as the FTSE 100 Index.

Investment funds put your capital at risk on a daily basis in line with any movement in the value of the underlying assets. Remember, it is the combination of both income and capital gains/losses that determine the overall return on your investment, not just the income headline rate on offer.

Another popular choice with our income investors are fixed income investment plans which usually contain some form of conditional capital protection. This means your initial capital is returned at the end of the plan unless the underlying investment (Index or shares) has fallen by more than a fixed percentage. This is normally set at 40% to 50% and in all cases is known prior to investing.

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 yield bond funds which diversify your investment across a large number of holdings, all of them have one thing in common – monthly income.

5.04% fixed income – Investec Enhanced Income Plan

The Enhanced Income Plan from Investec continues to be one of our best sellers. One of the main appeals for income seekers is that the income is fixed and so 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 5.04% (paid as 0.42% 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: “Anyone looking for a fixed income around the 5% mark will have limited options. The high level of fixed income and the monthly payment frequency on offer from this plan 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.”

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Top 5 Bond Funds Paying Over 5% Income

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Regardless of what is happening to the UK economy and to the UK stock market, one of the most frequent demands put on our capital is the need to provide us with an income.

From capital protected bank deposits paying a fixed rate, capital at risk investments offering variable income, and everything in between, the options are vast. With this in mind, we bring you five bond funds paying over 5% income, all from our Select Range of investment funds and all available at 0% initial charge via the Fair Investment Fund Supermarket.


Fund criteria

This month’s bond fund selections are based on the following criteria:

Paying at least 5% income
All of the funds have a distribution yield* of at least 5%. The lowest income is 5.30% whilst the top paying fund is currently yielding 6.64% (as at 31/03/2015).

0% initial charge
All of the funds have a 0% initial charge via the Fair Investment Fund Supermarket.

Payment frequency of at least quarterly
On the basis that receiving income at least quarterly continues to be an important consideration for investors seeking income, three of the funds pay income monthly whilst the other two pay quarterly.

Taken from our Select Range of funds
Our Select Range of funds is based on investment analysis carried out by leading independent research and ratings company Morningstar OBSR (click here to read more about how our Select Range of funds selected).

Minimum Bronze rating
The top three ratings given by Morningstar OBSR, Gold, Silver and Bronze, indicate that a fund is highly regarded by their team of analysts. The very highest ratings are given to funds which, in the analysts’ opinion, have the strongest ability to outperform their benchmark and peers over time, within the context of the risks taken – the stronger the conviction, the higher the rating. Three of the funds have a Bronze analyst rating and the other two are Silver rated.

The funds are ranked based on their Morningstar OBSR rating, starting with the highest:
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Investment Focus – Investec Enhanced Income Plan

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Last updated: 09/06/2015

By combining a high level of regular fixed income with some capital protection against a falling stock market, the Enhanced Income Plan from Investec Bank has year on year been one of our most popular income investments. With the need for income often at the forefront of both savers and investors minds, we take a look at why this investment plan has proved to be a consistent best seller.

Income needs high on the agenda

Whether you are working and need to supplement your earnings, or retired and looking at options for your pension or ways to add to your pension income, the need for income is one of the most common demands put on our capital. In the last few months we have also witnessed some of the most radical changes to pension legislation in living memory, allowing individuals far greater flexibility to withdraw cash from their pension. But as annuity rates continue to offer low annual yields, whatever your situation the ability to generate an attractive income stream is a challenge, despite usually being the first item on the agenda.

Savers and investors face contrasting fortunes

Apart from a few blips, investing in the stock market over the last couple of years will have been a rewarding experience, culminating in the FTSE breaking through the 7,000 barrier for the first time in history. And yet despite the attractive dividend yields we have seen from a number of our largest companies, whilst the FTSE 100 Index remains at record high levels, there are many investors who remain uncertain about the level of income that might be enjoyed in the coming years. Remember, it is the income and any capital loss/rise combined that contribute to your overall return.

In contrast to the growth of the FTSE, savings rates are still at record lows and with no realistic prospect of a quick turnaround to the rates of yesteryear, whatever your situation the ability to meet income needs remains a very real challenge. But against this backdrop of intense pressure on savers, and whilst stock market conditions perhaps raise more questions than they do answers, this investment from Investec has remained a top seller with income seekers

In a nutshell

The Enhanced Income Plan is a relatively straightforward plan to understand. The current version offers investors a high fixed income of 5.16% each year and your investment has a fixed term of six years. Your capital is at risk should the FTSE 100 (‘the FTSE’) fall below 50% of its starting value on any closing date throughout the investment term and also finishes below the starting value. This is known as conditional capital protection and is one of the plan’s main differentiators from other types of income investments.

Fixed income

The current issue of the plan offers a high level of income at 5.16% per year, but whilst yield on many traditional income investments is normally variable, one of the main features of the Enhanced Income Plan is that the income is fixed rather than being dependent on the stock market. This means that the investor has the certainty of knowing at the outset exactly how much he will receive each and every year.
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