Posts Tagged ‘investment isas’

Investment Focus: Investec FTSE 100 Enhanced Income Plan

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Our Investment Focus articles are designed to give new and existing customers a more detailed overview of a selection of income and growth investment plans, covering both the risks and the rewards. So whilst the income yields from the FTSE 100 remain under pressure, what better way to start 2017 than to review our best selling income plan, offering a high level of fixed monthly income. Some of you may be familiar with the plan, some of you may even have invested or reinvested into the plan, which remains popular year after year with a wide range of income seekers.

In a nutshell

Investec’s FTSE 100 Enhanced Income Plan is a relatively straightforward plan to understand. It pays a fixed rate of income, every month, for a fixed term. Therefore, your income is paid regardless of what happens to the stock market. The ‘FTSE 100’ in the plan title refers to what happens to your original investment, with your initial capital returned at the end of the term unless the FTSE 100 Index falls by more than 50% during the plan term. If it does, and also finishes below its starting value, you will lose 1% for each 1% fall in the Index. This plan therefore puts your capital at risk.

What is driving customers?

This is our best-selling income investment plan. Whether you are working and need to supplement your earnings, or retired and looking at ways to supplement your pension or savings income, the need for income is one of the most common demands put on our capital. Traditional investment funds only tend to offer a variable income, whilst also putting your capital at risk on a daily basis. Rather uniquely in the income investment space, this plan combines a fixed income with some degree of capital protection.

Where have all the fixed rates gone?

In contrast to the high levels of the FTSE 100 Index we have experienced recently, fixed savings rates are still at record lows. With no realistic prospect of any sudden sharp increases, let alone a return to the 4%+ rates that were around five years ago, 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. So let’s take a look at its main features…

Fixed income

With savings rates at such low levels, the prospect of a high fixed income is likely to be attractive to a wide range of income seekers. Unusual for an investment, which normally pay a variable income dependent on the performance of the underlying asset, this plan pays a fixed income regardless of the performance of the stock market. The current issue of the plan is paying 5.04% p.a. fixed, which means that the investor has the certainty of knowing at the outset exactly how much they will receive each and every year.

Monthly payments

Another popular feature is the monthly payment frequency since this is the most useful in terms of budgeting, especially when many UK equity income funds only offer twice yearly or quarterly payments. Therefore, not only does the investment provide a high level of fixed income, but it also pays this on a monthly basis, which could be an important feature when looking to supplement existing income. At 5.04% p.a. on offer from the latest issue, this equates to 0.42% paid each and every month for the entire term of the plan.

Fixed term

The Enhanced Income Plan has a fixed term of six years and although you do have the option to withdraw your money early (and in this respect is not dissimilar to an investment fund), the plan is designed to be held for the full term and early withdrawal could result in you getting back less (or more) than you invested.

Many fixed rate savers will be used to a fixed term whilst this feature should also appeal to investors who wish to plan around this accordingly. Combined with a fixed and regular level of income, this also means that full plan terms are known at the outset and so investors can consider more clearly the risk versus reward prior to investing their capital.

Some capital protection from a falling market

The Enhanced Income Plan contains what is known as conditional capital protection, which means that the return of your initial investment is conditional on the FTSE 100 Index not falling by more than 50% below its value at the start of the plan. If the FTSE stays above this 50% barrier throughout the plan term, you will receive a full return of your original investment when the plan ends. However, if it falls below this level, and is also below its starting value at the end of the six year term, your initial investment will be reduced by 1% for every 1% fall. Therefore this plan puts your capital at risk and you could lose some or all of your initial investment.

The use of averaging

When calculating the final level of the FTSE for the purposes of comparing it with its value at the start of the plan, the plan takes the average of the closing levels of the Index on each business day during the last 6 months of the plan term. The use of averaging can reduce the adverse effects of a falling market or sudden market falls whilst it can also reduce the benefits of an increasing market or sudden increases in the market during the last six months of the plan.

Credit ratings and agencies

This plan is a structured investment and so unlike investing in a fund where you would buy units at the prevailing price on the date of purchase, your initial capital is used to purchase securities issued by Investec Bank plc. These securities are structured in a way so that they aim to provide the fixed income and the return of capital as described above, and means that Investec Bank plc’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any future income, as well as the return of your original investment and you would not be covered by the Financial Services Compensation Scheme for default alone.

Fitch is one of the main global credit rating agencies and has awarded Investec Bank plc a credit rating of BBB with a stable outlook (awarded 3rd October 2016). The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low and that Investec Bank plc’s capacity for payment of its financial commitments is considered to be adequate but adverse business or economic conditions are more likely to impair this capacity. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 9,000 people and as at 31st March 2016, look after £121.7 billion of customer assets. They provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their banking operation looks after £24.0 billion of customer deposits and they are also a market leading provider of investment plans and structured deposits in the UK.

Risk v reward

The principle of risk versus reward means that the search for potentially higher returns leads us to consider putting our capital at risk. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit (capital protected) over a similar timeframe, and then consider whether you are comfortable with the risk to capital you are taking in order to receive the opportunity for a higher return.

Our leading five year fixed rate bond is currently offering 2.01%, and so by accepting risk to your capital, you are increasing your fixed return by 3.03% a year (since the fixed income from this investment is 5.04% p.a.). With the savings market failing to meet the need for higher income, the decision is whether you are comfortable with putting your capital at risk and the conditional capital protection offered, in order to achieve the higher return.

Fair Investment view

Commenting on the plan, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “One of the main attractions with the Enhanced Income Plan is the ability for potential investors to consider its risk versus reward prior to investing. The plan pays a fixed income, each month, for a fixed term – so you know exactly what you will receive, when, and for how long – whilst you get your capital back at the end of the term unless the FTSE has fallen by more than 50%.“

He continued: “Compared to other income investments, this defined return for a defined level of risk could be attractive whilst the monthly income and fixed income features are often high up on the list of priorities for income seekers.”

The plan is open for new ISA investments up to the £15,240 allowance, Cash ISA and Stocks & Shares ISA transfers, as well as non-ISA investments. The minimum investment is £3,000.

Click for more information about the Investec FTSE 100 Enhanced Income 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 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.

This investment does not include the same security of capital that is afforded to a deposit account. Your capital is at risk.

Tax treatment of ISAs 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.

This is a structured investment plan that is not capital protected and is 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 is not a guide to its future performance.

Lifetime ISAs explained – the story so far

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One of the most interesting developments to come out of this year’s Budget is the announcement of a new category of ISA, the Lifetime ISA. Although some of the detail is yet to be finalised, we should all take note of the potential for a bonus of up to £32,000 in cash from the government, and so here we take a quick tour of what we know so far…

ISA allowance

Lifetime ISAs are due to launch in April 2017, which coincides with another significant increase in the ISA allowance, as it rises from its current level of £15,240 to £20,000 from the start of the next tax year. So whilst all contributions into a Lifetime ISA will count towards the total amount you can contribute into an ISA, savers will have another £4,760 of ISA allowance at their disposal.

Lifetime ISAs

The Lifetime ISA will provide a new way for those aged between 18 and 40 to save for both the purchase of their first property and their retirement simultaneously, with both cash and investment versions to be available. In addition to benefitting from the tax-advantages of an ISA, savers who use the account in certain ways could also retain a 25% bonus from the government on their contributions.

Who can use them?

To qualify you simply need to be aged 18 or over and under 40 on the date you open an account. They can be taken out in addition to a standard Cash or Investment ISA, as well as the current Help-to-Buy ISA. You can also open a Lifetime ISA even if you already own a property.

How will they work?

From its launch eligible savers will be able to contribute up to a maximum of £4,000 a year into a Lifetime ISA, however contributions made into the account before the holder’s 50th birthday will be eligible to receive the 25% government bonus – this essentially means they could gain an additional £1 for every £4 saved. This bonus element is not included as part of your annual ISA allowance.

The account will therefore have a maximum individual contribution limit of up to £128,000 (if you put in the maximum amount of £4,000 for every year between ages 18 and 50) which can be matched by the government bonus to a maximum of £32,000, giving a total of £160,000. The bonus will also be added each year, so you can earn interest or investment growth on it thereafter.

Getting the bonus payment

In order to retain the 25% bonus payments there are specific rules about how and when the savers need to use the capital within the account. Two scenarios are eligible, the first being anyone under the age of 60 using the proceeds towards purchasing their first property, and the second is anyone over the age of 60 using the funds to support their retirement.

Property purchase

Before the account holder is aged 60 years or over the only way to receive the bonus on their savings is to use the money within the account to purchase a property as a first-time buyer, either outright or using it for the deposit on a mortgage. In this instance the money will be paid directly to the person carrying out the conveyancing for the new home.

A first-time buyer is considered someone who has never owned property before whether in the UK or elsewhere, and in order to receive the bonus the property is also restricted to having a maximum value of £450,000 no matter where it is in the country. This is different to the current Help-to-Buy ISA which limits the property value to £250,000 if outside of London. The buyer must also be intending to live within the property so investment properties such as Buy to Lets would not be eligible for the bonus.

As the Lifetime ISA is an individual product couples are permitted to have one each, which means that a couple could generate up to £64,000 in a bonus payment towards the acquisition cost of their first home. In cases where one member of a couple has previously owned property but the other has not, they will still be able to benefit from one member using their Lifetime ISA to help fund the purchase.

In ‘retirement’

Once the account holder reaches 60 years old they will be able to receive the bonus upon any full or partial withdrawal. The account proceeds can be used for any purpose and will be paid free of tax. Funds can also remain invested and any interest and investment growth will continue to be tax-free – this includes any capital left over in the account if the Lifetime ISA holder already used it to fund a ‘bonus-eligible’ first property purchase.

Other withdrawals

Savers looking to make a withdrawal before their 60th birthday for reasons other than their first property purchase will be permitted to do so, but they will have to repay all the money added to the account by the government. They will also incur a 5% charge upon the amount withdrawn – an early redemption penalty.

Lifetime ISAs and Help-to-Buy ISAs

You can have both a Help-to-Buy ISA and a Lifetime ISA, however you are only permitted to use the bonus of one of the accounts to purchase property. Before Lifetime ISA’s launch it is also possible to save with a Help-to-Buy ISA in the meantime and then transfer it into a Lifetime ISA when they launch.

Fair Investment view

Commenting on the Lifetime ISA, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “The idea of a 25% uplift towards a deposit for buying your first home will be attractive to some, but it is those with half an eye on their retirement years that could really benefit. Building up a pot in a tax-efficient environment over which you have complete control as to how much you take out and when is an attractive proposition. Add in the 25% bonus and the fact that any interest or investment growth will be compounded over time, and you could potentially end up with a sizeable tax-free pot to complement any other retirement provision.”

He continued: “Assuming you started your Lifetime ISA at age 35 and paid in £4,000 each year for the next 15 years, which would have another £1,000 per year added to it by the government. Not only would you have received £15,000 in bonus payments, but if your fund had grown at 5% each year (net of charges), at age 60 your pot would be worth almost £200,000, all of which would be available to take completely tax free, as and when you wish.”

 

Click here to compare our selection of Cash ISAs »

Click here to compare our selection of Help-to-Buy ISAs »

Click here to compare our selection of Investment ISAs »

 

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. The example used in this newsletter is for indicative purposes only and all funds will contain their own risk element in relation to growth and performance. 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. Tax treatment of ISAs 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.

60 second ISA savers guide to the 2016 Budget

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Following last month’s speech by the Chancellor, George Osbourne, we give our 60 second guide to the Budget for ISA savers, offering a quick round up of the main changes and what this will mean for both cash savers and investors alike.

Your ISA Allowance

While Chancellor George Osborne may have taken the decision to maintain the Individual Savings Account (ISA) Allowance at £15,240 for this new tax year (2016/17), the chancellor also announced that from 6th April 2017, it will see a significant increase of £4,760 giving savers and investors a total allowance of £20,000 to spread between their ISA accounts over the 2017/18 tax year. The Junior ISA limit will remain at its current rate of £4,080.

Innovative Finance ISA

The recent Budget also introduced a new type of ISA which has launched for this current tax year. Announced in the Summer Budget of 2015, this has fallen slightly under the radar for many but this new savings option, entitled the ‘Innovative Finance ISA’, is designed to provide a tax-free wrapper for investors in Peer-to-Peer Lending (P2P). This ISA allows individuals to lend to others by using Peer to Peer Lending platforms but without paying tax on the interest they earn.

As this is a new distinct category of ISA, savers can open an IFISA along with a Cash ISA and a Stocks and Shares ISA (or Investment ISA), all within the same tax year – so any contributions into this type of ISA does count towards the £15,240 current tax year allowance. Although at present there are only a small number of P2P providers who have been authorised to offer their products within an ISA, there are a significant number who are awaiting authorisation. The area of P2P lending has seen significant growth in recent years and there will be more to follow on this later in the year…

Lifetime ISA

Possibly one of the biggest headlines for this year’s budget was the announcement by Mr Osborne of another kind of ISA which will launch in April 2017 – the Lifetime ISA. The Lifetime ISA will allow individuals aged between 18 and 40 to simultaneously save for both the purchase of their first home and their retirement. The ISA will work similarly to the current Help to Buy ISA, in that savers will be granted a 25% bonus on their contributions when used to purchase all, or part, of a new home (up to a maximum property value of £450,000 nationwide), with a maximum annual contribution limit of £4,000.

However, savers will not be limited in how much they can contribute each month and in addition to this, money withdrawn after the account holder’s 60th birthday will also enjoy the same bonus and can be used for any means. Savers will be able to receive their bonus on contributions made up until their 50th birthday, leaving the possibility to make a maximum individual contribution of £128,000 which would be matched by the government to a value of £32,000. Partial withdrawals from the account for other uses before the age of 60 will be allowed but will not benefit from the bonus or any interest upon it and incur a 5% charge.

Help to Buy ISA

With much of its function being replicated with the new Lifetime ISA, it was also announced that Help to Buy ISAs will be made unavailable to new savers from the 30th November 2019. Savers who opened a Help to Buy ISA before this date will be able to keep saving into the account, but they must claim the bonus by 1st December 2030. However savers waiting for the Lifetime ISA to launch should be aware that it is possible to open a Help to Buy ISA and then merge it with a Lifetime ISA when it launches in April next year. It is also possible to have both a Help to Buy ISA and a Lifetime ISA but individuals will only be able to benefit from one of the bonus payments when used to purchase a property.

Helping savers plan for the future

All in all this was a good budget for ISA savers, but we must not also overlook the significant reforms which have taken place since the New ISA (NISA) was introduced in April 2014 and which remain unchanged, including:

  • Increased flexibility – savers can divide their ISA allowance between Cash ISA and Stocks and Shares ISAs in whatever proportion they wish, especially welcome news for those who want to use their entire ISA allowance for cash savings which had been previously capped.
  • Increased ISA transfer potential – savers can transfer from a Stocks and Shares ISA to a Cash ISA, or the other way around. Previously, transfers from Stocks and Shares ISAs to Cash ISA were not permitted.
  • Tax-free interest in Stocks and Shares ISAs – interest is now earned tax free in a Stocks and Shares ISA whereas previously, with the exception of a Cash ISA, any cash held within the Stocks and Shares element of an ISA was subject to a 20% charge on the interest earned – paid to HMRC.
  • Withdrawals permitted – since last year savers may now withdraw and replace money in the same tax year, without it counting towards their annual ISA allowance provided that it is paid back in to the account by the end of the financial year in which the withdrawal is made. Previously money taken out of an ISA lost its tax free status, meaning that additional payments would count towards your allowance for that year.
  • Junior ISA flexibility – those who have taken out a Child Trust Fund (CTF) for their child are now permitted to convert the fund into a Junior ISA.
  • Passing on an ISA allowance – married couples can pass an extra ISA allowance, equal to the value of their ISA savings on death, to their surviving spouse. This means that couples can now pass the ISA tax breaks to each other however, passing the ISA tax status from parent’s to children is still not permitted. When the surviving partner dies, they will continue to fall inside the family estate for inheritance tax purposes.

Combined, these ISA reforms give savers every opportunity to plan for the future, regardless of their stage of life.

Fair Investment View

Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “Along with the changes made to existing rules surrounding ISAs in the last two years, the 2016 Budget’s announcement of several new types of Individual Savings Account means that individuals may now utilise their personal ISA allowance with far greater flexibility than ever before, spreading their allowance between a variety of savings and investment plans to meet their needs.”

He continued: “But perhaps the most significant move is the increase to a £20,000 ISA allowance in 2017. Remember that just 2 years ago, the allowance stood at just £11,880, with a boost from 1st July of that year to £15,000. This recent announcement sees the limit rise from £11,880 on 6th April 2014 to £20,000 on 6th April 2017, a rise of £8,120 in just 3 years. This means that a couple could save up to £30,480 during this current tax year, increasing to £40,000 from 6th April next year, offering the potential to accrue considerable sums within their ISA accounts in a relatively small timeframe. Good news indeed for savers.”

For more information, see some of our most popular ISA pages below:

Click here for our Top 10 Investment ISA Plans »

Click here to compare our selection of Cash ISAs »

Click here to compare our selection of Investment ISAs »

Click here to compare our selection of Share Dealing and Self-select ISAs »

 

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. Tax treatment of ISAs 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.

Tax free income using your ISA allowance

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With only 5 weeks until the end of the tax year, time is running out to maximise the valuable tax benefit of your 2015/16 ISA allowance, before it is lost forever. We have been helping ISA savers for well over a decade, and history shows us that many investors will be looking for the opportunity to receive tax-free income from their ISA allowance. With the current tax year ISA limit of £15,240 only available to use before 5th April, now could be a great time to make the most of tax-free income opportunities, as well as looking towards income ISA options for the new tax year ahead.

Why seek income from your ISA allowance?

When it comes to investing, generating an income is one of the most common demands we put on our capital, and so the opportunity to receive tax-free income is one that investors will not want to miss out on. As record low interest rates continue, and the returns available from fixed rate bonds remain largely unappealing, many are considering taking on more risk with their capital. Therefore, it is perhaps understandable why many investors are turning to income generating investment opportunities. Using your ISA allowance allows you to receive this income tax-free, thereby protecting more of your hard-earned capital from the taxman.

Take advantage of ISA transfers

Another priority at this time of year is to review your ISA transfer options. Reviewing any existing ISAs is sensible to do at regular intervals, to make sure you don’t squander the valuable tax efficient benefits of your ISA savings. Checking for low interest bearing Cash ISAs or poorly performing Investment ISAs is a prudent measure, and if you find that your current ISA is no longer offering a competitive deal, most ISAs permit you to transfer existing ISAs to them without charge – although don’t forget to check whether there are any penalties from your existing provider.

Frequency of income payments

There are many options to consider when seeking income from your capital via an ISA, including the level of income offered, degree of risk, and frequency of income payments. Investments can offer the option of annual, bi-annual or quarterly payments, but for those seeking regular income, a plan which offers monthly income payments is often the most appealing.

Defined return, defined risk

We feature two plans below, both of which offer you a defined return for a defined level of risk, which means that you know the exact terms of each plan prior to investing, and exactly what needs to happen in order to provide you with the stated returns. They also include what is known as conditional capital protection, whereby your original capital is returned at the end of the plan term, as long as the underlying investment has not fallen by more than a specified amount, normally a percentage of its starting value.

Investors can then decide based on the likelihood of this happening in combination with the income on offer. This is a unique feature of structured investments and is in contrast to other income investments where your capital is exposed to day to day stock market risk and fluctuations in value. As savers continue to face the impact of record low savings rates, this feature could be an attractive option for those considering taking on investment risk with some of their capital.

Tax-free income options using your ISA allowance

All of the investment plans featured on www.fairinvestment.co.uk are available as New ISAs and accept ISA transfers (as well as non-ISA investments) although note any application deadlines that may apply. The income paid from an investment held within an ISA is not then subject to tax, thereby resulting in the potential for an attractive stream of tax free income. To help you compare ISA investment options for income, here are two of our ISA season income best-sellers:

5.28% fixed income, monthly payments

The FTSE 100 Enhanced Income Plan from Investec has been one of our best selling income investments for a number of years, and it is particularly popular during the ISA season. The main appeal of the plan is that it offers a fixed income which is paid to you each month, regardless of the performance of the FTSE 100 Index. The annual income is currently 5.28% (paid as 0.44% each month).

The plan will also return your initial capital at the end of the term unless the FTSE falls by more than 50% during the plan term. If it does, and fails to recover by the end of the term, 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: “One of the attractions of an ISA is that it allows income to be generated that would otherwise be subject to income tax. Should you invest in this plan directly (i.e. outside of an ISA), the income would normally be subject to income tax. Using your ISA allowance therefore offers basic rate tax payers the equivalent of 6.60% each year, and for higher rate taxpayers this rises to 8.80%.

The high level of fixed income and the monthly payment frequency are popular features and combined with a fixed term, means the investor knows exactly how much they will be paid, when, and for how long, whilst also having some capital protection against a falling stock market. The current issue of the plan also offers a Double ISA option, with the opportunity to invest using both your 2015/16 and 2016/17 ISA allowances.”

Click here for more information on the Investec FTSE 100 Enhanced Income Plan »

 

Up to 7.0% yield, quarterly payments

The Focus FTSE Quarterly Contingent Income Plan offers the potential for up to 7.0% annual income dependent on the performance of the FTSE 100 Index. The plans pays a quarterly income of 1.75% provided the value of the Index at the end of each quarter has not fallen by more than 25% from its value at the start of the plan. If the Index is below this level, no income would be paid for that quarter.

Your initial capital is returned at the end of the plan provided the FTSE has not fallen by more than 40%, measured at the end of the fixed term only. If it has fallen below this level, your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “It’s has been a while since we’ve been able to talk about the potential for up to 7.0% income from a plan based on the performance of the FTSE, but the latest issue of this popular income investment offers exactly that. The 25% barrier means that the FTSE can fall up to 25% at the end of each quarter and you would still receive 7.0% annual income. With typical yields on UK equity income funds feeling the strain at the moment, this investment could be a timely addition to those seeking high yield investment opportunities.”

Click here for more information on the Focus FTSE Quarterly Contingent Income Plan »

 

Don’t miss out – use it or lose it…

For those looking for income it has perhaps never been more important to manage your savings and investments carefully, and making the most of your tax-free ISA allowance should be a top priority. With only 5 weeks to go until the end of the tax year and the ISA investment deadline, it’s important to make the most of this opportunity, as well as planning ahead to maximise your tax-free income for the forthcoming tax year.

The income investments detailed above are available for individuals to use their ISA allowance and will also accept ISA transfers (from both Cash ISAs and Stocks & Shares ISAs) and non-ISA investments, with minimum investments from £3,000. The current issues of both plans also offer a double ISA option, so investors can use this year’s and next year’s ISA allowance on one application form. For the current tax year (2015/16) the annual New ISA allowance is £15,240 and this is also the limit for the next tax year (2016/17) which starts on 6th April 2016. You can therefore invest up to £30,480 into new ISAs that give you the opportunity to receive a regular tax free income.


Click here to find out more about the Investec Enhanced Income Plan »

Click here to find out more about the Focus FTSE Quarterly Contingent Income 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 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 legislation which are subject to change in the future. ISA transfer charges may apply, please check with your provider.

Structured investment plans 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 is not a guide to their future performance. These investments do not include the same security of capital as a deposit account.

Investor’s Guide to Income

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Last updated: 15/02/2016

The need for income remains firmly at the top of the investor’s New Year priority list and as the hunt for high yield opportunities continues, being able to understand and compare the numerous options available is more important than ever. So what better place to start 2016 than with our Investor’s Guide to Income where we give you an overview of the range of income options on offer, as well as compare some of our most popular investment ideas from last year and their main differences.

Why is income a top priority?

There’s no denying that generating an income is one the most common demands placed on our capital, even more so as low interest rates still appear to be with us for some time to come and there remains a significant question mark around what might happen to inflation in the coming years. Whilst annuity rates also remain comparatively low and many salaries are only just starting to keep up with the real cost of living, it is understandable why income remains a top priority, regardless of our stage in life.

Trends from the last couple of years show that there have been record numbers of ISA savers using the investment element of the New ISA allowance, revealing that many are looking to take on more risk than before in an attempt to try and produce the levels of income previously enjoyed. So as 2016 gets underway, this brief investor’s guide to income is the start of the income and ISA themes that we will develop throughout the year as the demand for innovative income investments continues and ISA savings take on an increasingly important role. So what are the main areas for consideration?

Open ended or fixed term?

Open ended

Most investors who have had income investments in the past are likely to have at least considered an open ended investment fund. Here, your investment is pooled together with those from other investors which combined make up a single fund. Your investment buys units in that fund at the prevailing price, which is normally priced daily based on the value of the underlying holdings. The majority of income funds are actively managed, which means that an investment manager, often supported by a team of analysts, researches companies and then invests accordingly, moving in and out of companies in line with fund’s investment objective and depending on their view of where income, and perhaps growth, can be achieved.

Since there is an ongoing management of the fund, there is normally an annual fund management charge along with additional charges for the platform and/or service within which you hold the fund. Open ended funds, as the name suggests, are designed to carry on regardless of whether new investors buy in, or existing investors sell their investment. The investor is therefore in control of when they buy the units in the fund, as well as when they decide to sell them, the price of which can go up and down on a daily basis depending on where the fund is invested and the performance of those assets.

Fixed term

Fixed term investments on the other hand last for a defined term, known at outset, and is normally around five or six years. Although most of these investment plans offer a daily secondary market price, which can be higher or lower than the price at the start the plan (and in this respect not dissimilar to investment funds), these investments are designed to be held for the full term. The fixed term may appeal to those who wish to plan around this and it also removes what can often be the difficult decision of when to sell or switch your existing investments.

Fixed income versus variable income

Investment funds

Income funds can be broadly split between two types, both of which offer variable income which means it can go down as well as up. Firstly, those funds which invest in companies (shares) and use dividends to provide income, for example funds in the UK Equity Income sector. One such fund and one which now has over 12 months trading history behind it, is the first fund offered by Neil Woodford’s new venture, the CF Woodford Equity Income fund, which targets a 4% income yield each year and pays quarterly.

The second type is those funds which use corporate bonds and/or gilts to provide income, such as Royal London’s Corporate Bond fund. This fund is Silver rated by Morningstar OBSR and has a current distribution yield* of 4.42% with quarterly income payments. Since the market value of both types of funds can fall as well as rise over time, so can the value of your units and since the fund manager will buy and sell different company shares or bonds depending on their view of the market, so too will your income vary.

Investment plans

Investment plans on the other hand can offer either variable income or fixed income. They differ from investment funds since they offer a defined return for a defined level of risk, known at the outset and prior to investing. One popular example of a variable income is the FTSE Contingent Income Plan from Focus (Credit Suisse acting as the counterparty), which offers up to 7.0% each year with a 1.75% income payment made at the end of each quarter provided the FTSE 100 Index closes at or above 75% of its value at the start of the plan (i.e. it can fall up to 25% and you would still receive an income payment). If it closes below this level, no income will be paid for that quarter. Capital is at risk if the FTSE falls by more than 40%.

With fixed income investment plans you know exactly what you will be paid, when and for how long, which has its obvious appeal for those looking to plan for the future and are seeking a regular and defined income. The Enhanced Income Plan from Investec has been our most popular income investment over the last few years with the current issue paying 5.28% annual income, regardless of what happens to the stock market. Since most yields on income investments are variable, this type of plan offers a unique and potentially attractive income alternative in the current climate. Capital is at risk if the FTSE falls by more than 50%.

Monthly or quarterly payments?

Another important feature of 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 with investors. These investments therefore provide a regular opportunity to receive an income, although different investment funds have different payment frequencies with many bond funds offering monthly income, whilst equity funds normally pay quarterly and, more rarely, twice yearly.

Investment plans normally offer monthly or quarterly payments. The Enhanced Income Plan mentioned above offers a fixed payment each month, currently at 0.44% of your initial investment, and since monthly income can be the most useful in terms of budgeting and when looking to supplement existing income, this payment frequency is often the most sought after. The FTSE Contingent Income Plan offers a potential income each quarter.

Conditional capital protection versus diversification

Conditional capital protection

Investment plans include what is known as conditional capital protection. This means that your initial capital is returned at the end of the investment term, as long as the underlying investment (for example, the FTSE 100 Index) has not fallen below a fixed percentage of its value at the start of the plan, normally 50%. This therefore offers some capital protection against a falling stock market. Your capital will be at risk if the underlying investment does fall below the defined level, in which case your initial capital will be reduced by 1% for each 1% fall, so there is the chance you could lose some or all of your initial investment.

Diversification

Your capital in an investment fund is at risk based on the value of the underlying holdings, which can go up or down on a daily basis. As such, there is no capital protection offered, nor is there the conditional capital protection associated with fixed term investment plans. However, since most funds invest in multiple holdings (equity funds between 30 and 90, bond funds often over 100), the impact of one of the underlying holdings falling significantly in value is reduced – this is commonly known as diversification. Investment funds also have the opportunity for capital growth should the value of the underlying investment rise in value, a feature which is not usually available within income investment plans.

Counterparty risk

Unlike a fund, fixed term investment plans use your investment to purchase securities issued by the counterparty (usually a retail or private bank), which means that their ability to meet their financial obligations becomes an important investment consideration. This is known as counterparty or credit risk and means that in the event of the bank’s insolvency, you could lose some or all of your initial capital as well as any rights to future income, and these investments are not covered by the Financial Services Compensation Scheme for default alone. There are various global credit rating agencies which assist in determining the potential credit worthiness of these institutions.

Risk versus reward

When considering income investment options it is important to understand the principle of risk versus reward, which means that the opportunity to receive a higher income than might be available from cash deposits inevitably requires the investor to put their capital at risk. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit over a similar timeframe (for example, five years) and then consider whether you are comfortable with the additional risk you are taking in order to receive either a high fixed return or the potential for a higher variable income.

Leading five year fixed rates are currently offering around 3% and so by accepting risk to your capital, the potential income over and above this (along with the potential for capital growth where relevant), allows the income investor to decide whether they are comfortable with putting their capital at risk in return for the yields on offer. Any conditional capital protection should also be a consideration, as should the potential to protect your income from the effects of inflation over time.

Use your New ISA allowance for tax free income

By contrast to the interest rate environment, the prominence of ISAs has moved forward considerably since the significant increase to the annual ISA allowance was introduced in July 2014. The current allowance is now £15,240 and since the distinction between Cash ISAs and Investment ISAs (or Stocks & Shares ISAs) has been removed, you can now place up to the full allowance in one or a mixture of both, and you can also transfer from one to the other without restriction. It is therefore up to you to decide how much of your ISA portfolio is put into cash and investments.

One of the main benefits of an ISA is that income is received tax free and with no further tax to pay. This is particularly attractive for income that would normally be subject to income tax (for example, interest from deposit based savings, most investment plans and income from bond funds) where the impact of tax can be significant, especially over time. With the lowest marginal rate of income tax currently standing at 20%, this is a sizeable reduction to any stated returns on offer. Remember that tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.

Fair Investment conclusion

Commenting on the range of income investments available, head of savings and investments at Fair Investment Company, Oliver Roylance-Smith, said: “Investment funds have traditionally been the more popular choice for income investors with varying investment objectives and a wide range of underlying investment styles and sectors to choose from. These also bring with them diversification benefits of spreading your investment across a number of different companies or bonds, as well as the potential for capital growth in addition to a regular income stream.”

He continued: “As an alternative to open ended investment funds, the defined return and defined risk offered by fixed term investments offer investors a different approach to achieving income. Their conditional capital protection also means that your initial investment has some protection against a falling market. Combined with either a fixed or variable income and these plans can offer a competitive balance of risk versus reward.

In conclusion, whichever route your choose, the market for income investments can be full of attractive headline yields but it is important to fully understand how each investment works and the risks it entails. Whether this is inflation risk, risk of capital loss or fluctuating yields, it should always be remembered that it is the income and capital loss/rise combined that produce your overall return.”

Investment plans

We have a number of fixed term investment plans which offer either a fixed income or a variable income based on the performance of the underlying investment.

Click here to compare our current selection of income investment plans »

Fair Investment Fund Supermarket

With over 3,300 clean (non-commission) share class funds and access to over 200 fund groups, the Fair Investment Fund Supermarket offers a vast choice of income funds, many of which have 0% initial charge and low annual management charges, including low cost tracker funs, bond funds, UK equity income, global income and managed funds.

Click here to compare our current selection of income investment funds »

 

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

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

Click here to compare UK Equity Income investment funds »

Click here to compare Bond Income investment funds »

 

* The distribution yield reflects the amounts that may be expected to be distributed over the next 12 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.

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. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. 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 legislation which may be subject to change in the future.

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.

Structured investment plans 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 is not a guide to its future performance.

Defensive investment plans revealed – what you need to know

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Defensive plans offer the potential for investment level returns even if the stock market fails to rise, or, in some scenarios, even falls slightly. With the closing levels of the FTSE 100 Index (‘the FTSE’) remaining above 6,000 points for almost the entire period since the start of 2013, defensive plans have risen in popularity as investors who are not confident the markets will rise further still have the opportunity to produce a competitive return on their capital. With this in mind, we take a closer look at a selection of our defensive plans to find out exactly what they have to offer and how the risk versus reward might be appealing in the current investment climate.

FTSE levels

Apart from a handful of days during August and September of this year, the FTSE has closed above 6,000 points since the start of 2013. The lowest level was on 24th August this year when the Index closed at 5,898 points whilst the highest closing level over this period was 7104 towards the end of April this year. This level also represents the highest closing level of the FTSE on record, having broken through the 7,000 point barrier for the first time only in March earlier this year.

What is a defensive plan?

Therefore, by historical standards, the FTSE has spent close to three years at what are historically high levels. Partly as a result of this, there has been an increase in the number of plans that offer the potential for investment returns, even if the event that the market fails to rise. Collectively, these are commonly known as defensive plans.

Different types

Although each plan has its own characteristics, collectively they are growth investments which offer the potential for either a fixed return for every year invested (not compounded), or a multiple in any rise in the underlying investment but starting from a lower initial level (normally with a cap on the maximum growth return on offer).  Each of these investments will be structured to offer a defined return for a defined level of risk, and as such you will know from the outset exactly what must happen in order to receive the stated returns on offer.

A middle ground

Defensive investments therefore try and offer the best of both worlds by offering the potential for investment level returns, even if the underlying investment only rises by a small amount, stays flat, or with some plans even goes down slightly. This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive the potential for investment level returns. With the FTSE at historically high levels, these could arguably offer a compelling investment opportunity.

Please note that past performance of the FTSE 100 Index is not a guide to its future performance.

Potential for enhanced returns – the defensive ‘supertracker’

The FTSE Defensive Supertracker from Meteor is a current example of the defensive supertracker. The ‘supertracker’ part means your investment tracks any growth in the FTSE 100 Index during the term of the plan and then triples it, whilst the plan is ‘defensive’ since this growth is based on any rise above 80% of the FTSE’s starting value.  Therefore, provided the FTSE has not fallen by more than 20%, you will receive triple any growth, subject to a maximum return of 60%, plus your capital back (that’s a 60% return even if the FTSE ends the same).

If the FTSE has fallen by more than 20%, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 40%. This investment could therefore offer a compelling risk versus reward for those who are not convinced the FTSE will rise significantly in the medium term. However, if the FTSE has fallen by more than 40%, your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Benefit from early maturity – the defensive kick out

If the FTSE had fallen by 5% in 3 years time and yet you still received 24% growth plus a return of your initial capital, would you consider this a good investment? Our range of defensive kick out plans offer up to 8.0% for each year invested (not compounded), even if the market falls up to 10%. The plans also offer the opportunity to mature early or kick out, as early as year 2 onwards, with different FTSE levels required depending on the individual plan.

The Investec FTSE 100 Defensive Kick-Out Plan will return 8.0% for each year plus a return of your capital provided the level of the FTSE at the end of each year from year 3 onwards, is above 90% of its starting value at the start of the plan. Meteors’ FTSE Defensive Kick Out Plan offers a marginally lower return of 7.75% in the event of kicking out but can mature at the end of year 2 onwards.

If with these plans the FTSE falls below the required level for each year, no growth will be achieved and you initial investment is returned in full unless the Index has fallen by either 40% or 50% (depending on the plan), measured at the end of the plan 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.

The potential for higher returns

Finally, the potential for higher returns is available if investors are prepared to take a higher level of risk, by having their return dependent on a small number of shares rather than an Index as a whole.  Mariana’s 3 Stock Defensive Consolation Plan offers the potential for 14.5% annual returns, as well as the opportunity to mature early, or ‘kick out’, after 12 months, and then after every six months thereafter.

The plan compares the value of three technology shares (Apple, Microsoft and Intel) at the start of the plan with their values at the end of the first year, and then each six months thereafter. If the values of all three shares are at or above their starting values your investment will end, returning your original capital plus 7.25% for each six months invested (not compounded). If one or more shares are below, the plan continues.

If the plan reaches the end of the six year term without kicking out, it also offers the opportunity for a ‘consolation’ return of 32% provided none of the shares has fallen by more than 50%. If one or more shares have fallen by more than 50% then no return will be paid and your initial capital will be reduced by 1% for each 1% fall of the lowest performing share, so you could lose some or all of your initial investment.

Fair Investment view

Commenting on the plans, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said: “Whilst markets remain at relatively high levels there is understandably a place for defensive investment plans. For those investors who are not confident that the market will rise by a healthy margin in the coming years, knowing that you can achieve 7%+ for each year invested regardless of whether the market goes up, remains flat, or even falls slightly, could be an interesting option.”

He continued: “Combining a competitive growth return with a full return of your initial capital unless the underlying investment falls by 40% or 50% also offers investors a defined return for a defined level of risk. This gives investors the ability to consider the risk versus reward of the plan prior to investing which could be appealing in light of the current investment climate.”

More information on the Meteor FTSE Defensive Supertracker Plan »

More information on the Investec FTSE 100 Defensive Kick Out Plan »

More information on the Meteor FTSE Defensive Kick Out Plan »

More information on the Mariana 3 Stock Defensive Consolation Kick Out Plan »

Click here to compare defensive investment plans »


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.

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 FSTE 100 Index or three shares listed on the NASDAQ 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. The past performance of the FTSE 100 Index or any shares listed on the NASDAQ is not a guide to their future performance. As share prices can move by a wide margin plans based on the performance of shares represent a higher risk investment than those based on indices as a whole.

How to achieve 10%+ growth returns, even if the market goes down

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Last updated: 05/01/2016

Although there are many reasons why investors ultimately decide to go ahead and invest or not, timing the stock market is one of the most commented areas in investor behaviour. So what market conditions lead us to consider whether now is the right time to invest or not? Perhaps two of the most common are when markets are trading at historically high levels, and when markets are particularly volatile. Therefore should both of these market conditions prevail at the same time, which we have experienced during 2015, then the self-questioning around whether to invest can increase significantly.

With this in mind, we take a look at a selection of investments that can still achieve 10%+ growth returns, even if the underlying investment has only risen by a very small amount or, in some cases, has even gone down slightly.

Popular in all markets?

By combining the ability to produce high growth returns, along with some capital protection against a falling market, these kick out investment plans offer a fairly unique blend of risk versus reward which has the potential to appeal to investors in a wide range of prevailing investment conditions. Although notably this type of investment has proved popular when markets are low (on the basis that the investor considers it more likely that the index will rise), these plans have also generated particular interest when markets are at historically high levels, as they have been for periods during 2015.

The potential for high returns

Whenever investors are considering when to invest and where to put their capital, perhaps the most appealing feature is the potential return on offer. All of the investments covered below offer a minimum of 10% for each year invested (not compounded). On the basis that a 7% return on your capital could be considered an investment level return, these are considered to offer the potential for high growth returns.

Example – potential 10.0% after just 12 months…

“The FTSE/STOXXX Defensive Kick Out Plan from Focus offers 10.0% for each year invested (not compounded) provided the value of the FTSE 100 Index and the Euro STOXX 50 Index (made up of the 50 leading blue chip companies in the Eurozone) are at or above a specified level at the end of each year. If either or both Indices close below the required level each year, no growth return will be paid and your capital is at risk if one or both Indices has fallen by more than 40% at the end of the plan, in which case you could lose some or all of your investment.

Depending on your view of the UK and European markets, this plan could offer a compelling combination of high growth potential along with some capital protection should markets fall.”

Click here for more info »

 

Returns even if the market stays relatively flat

Many kick out investments are designed to provide returns even if the market has stayed relatively flat. This means that even if the stock market has only gone up by a small amount, you would still receive the full growth return. So if you’re not convinced the markets will rise in the future and yet still wish to achieve double digit returns, the opportunity to beat the stock market in conditions such as these could be a compelling investment story, and perhaps helps to explain why this type of investment has proved particularly popular with our investors.

Example – potential 10.0% even if the FTSE only rises a little

“The Enhanced Kick Out Plan from Investec will return 10.0% for each year invested (not compounded) provided the value of the FTSE 100 Index at the end of each plan year is higher than its value at the start of the plan (subject to averaging). If the FTSE is lower at the end of every year, no growth will be achieved and your initial investment is returned in full unless the FTSE 100 Index falls by more than 50% during the term, in which case you could lose some or all of your initial investment.

This plan is one of our best selling growth investments and the potential 10.0% on offer from this latest issue is its highest headline return seen since the start of 2013.”

Click here for more info »

 

Double digit returns even if markets fall slightly

There are also a number of kick out plans that will provide double digit growth returns even if the underlying investment(s) falls slightly, for example up to 15% or 20%. These so called ‘defensive’ kick out plans thereby cater for a wider range of investor views as to what could happen to the stock market in the coming years. Whilst stock markets remain at what are historically still relatively high levels, this can prove to be a popular feature.

Example – potential 12.0% each year, even if markets fall up to 20%

“The Investec Dual Index Step Down Kick-Out Plan offers 12.0% for each year invested (not compounded) provided the value of the FTSE 100 Index and the Euro STOXX 50 Index (made up of the 50 leading blue chip companies in the Eurozone) are above a specific level at the end of each year, compared to their values at the start of the plan. The required levels are 100% at the end of year two, reducing by 5% each year thereafter down to 80% in the final year.

If either or both Indices close below the required level each year, no growth return will be paid and your initial investment will be returned in full unless one or both Indices has fallen by more than 50% during the term of the plan. If this does occur, your capital is at risk depending on the worst performing Index and so you could lose some or all of your investment.”

Click here for more info »

 

Some capital protection from a falling market

When comparing the risk versus reward of any investment it is important to understand the circumstances when your initial capital could be lost. With kick out investments your original capital is returned if the plan kicks out, but should this not occur then typically your capital will be returned provided the underlying investment has not fallen below a certain amount, normally a percentage of its value at the start of the plan.

To put this into context, for a plan which offers a return of capital unless the FTSE falls by more than 50%, then based on this morning’s (27/10/2015) opening value of 6,471.0, the Index would have to fall to a closing level of 3,235.5 before your capital would be at risk, a level not seen since 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.

Understanding counterparty risk

One of the main differences with structured investment plans when compared with other types of investments, such as funds or investment trusts, is that your capital is used to purchase securities and it is these securities which are designed to produce the stated returns on offer. These securities are normally issued by a bank which means that your investment is held with a single institution rather than split between a number of companies, as it would be within, for example, an investment fund.

This means the risk of the bank becoming insolvent and therefore 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.

Defined return, defined risk

One of the main features of kick out investments is that the potential returns on offer are stated up front, and so are known before you commit your capital. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, since you know at the outset exactly what needs to happen in order to achieve any stated returns as well as a return of your initial investment. This can then be used to make an informed decision about whether to proceed or not by comparing the defined return and defined risk with alternative investments.

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 versus 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 potential for high investment returns, even if the market stays relatively flat or in some cases 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.”

Latest selections

Click here for the latest kick out investments »

Click here for the latest defensive kick out investments »

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 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.

Kick out investment plans 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. 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. The past performance of individual shares, the FTSE 100 Index and the EURO STOXX 50 Index is not a guide to their future performance.

ISA Season Selections – Investment ISAs

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With ISA season well and truly under way, this is an important time to consider how best to make use of this valuable tax break and remember, if you do not use your ISA allowance before midnight on 5th April 2015, it is lost forever. With the need to review existing ISAs as well as making sure new investments offer the opportunity for higher returns, we bring you our selection of the best income and growth Investment ISAs the market currently has to offer.

Our Selections

Below we have listed some of our most popular Investment ISA plans, featuring both income and growth investments. With income needs continuing to play a critical role for many investors, the attraction of having tax free income is understandable. Whilst for investors looking for growth, we have a number of plans including those which take a defensive view on the stock market, as well as investments with the opportunity to mature early or ‘kick out’. With the potential for headline returns of up to 13% annual income and 20% growth, we cover a wide range of opportunities.

Defined return, defined risk 

All of the plans detailed offer you a defined return for a defined level of risk, which means that you know the exact terms of the plan prior to investing and exactly what needs to happen in order to provide you with the stated income or growth return. They also include what is known as conditional capital protection, whereby your original capital is returned at the end of the plan term, as long as the underlying investment has not fallen by more than a specified amount, normally 50% of its starting value. As savers continue to face the impact of record low savings rates, this feature could be an attractive option for those considering taking risk with some of their capital.

INCOME ISAs

5.28% fixed income each year, monthly payments

The Enhanced Income Plan from Investec was our most popular income investment during last year’s ISA season and continues to remain a best seller with income investors as well as savers looking for investment alternatives. The main appeal of the plan is that it offers a fixed income of 5.28%, which is paid to you as 0.44% each month regardless of the performance of the FTSE 100 Index. Capital is at risk if the Index 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 lose some or all of your initial investment.

Click here for further information » 

7.2% fixed income each year, monthly payments 

The FTSE 5 Monthly Income Plan also offers a fixed income with the current issue offering 7.2% each year, paid to you as 0.6% each month regardless of the performance of the stock market. The higher level of income is due to the return of your capital being dependent on the performance of five FTSE 100 shares – if the value of the lowest performing share at the end of the term is 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.

Click here for further information » 
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10 Top Tips for 2015 ISA Season

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With less than 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance and squirreling away your hard-earned cash from the tax man, if you haven’t done so already. ISA season is an important time for savers and investors to review their existing ISAs as well as make sure they maximise new opportunities, and with the increased £15,000 New ISA allowance, this time of year has never been more important. To help you make the most of your ISA allowance, we’ve put together out Top 10 tips for the 2015 ISA season.

Tip 1 – Don’t miss the end of tax year deadline 

On the basis we can all be guilty of putting off until tomorrow those things which need to be done today, there’s a lot to be said for acting in good time. So before you do anything else ISA-related, make sure you remember the most important end of tax year deadline which is midnight on 5th April. This is the latest date for using your ISA allowance and since it cannot be backdated to a previous tax year – if you don’t use it, you lose it. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers. 

Tip 2 – Maximise your ISA allowance 

As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put the entire allowance into an Investment ISA (Stocks & Shares ISA), or the entire allowance into a Cash ISA. If you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into the other type. Also remember that these allowances are per person, so a couple can invest up to £30,000 in total before midnight on 5th April 2015.

Tip 3 – Understand what your ISA could achieve

Why pay tax on money that you can protect from the tax man? If you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 7% each year, you would now have a lump sum close to £240,000. This is a significant amount, especially when you consider over £100,000 of this would otherwise have been subject to income tax and/or capital gains tax. 
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