With only a month to go, time is running out to maximise the valuable tax benefit of your ISA allowance before the deadline on 5th April 2013 – otherwise it is gone forever. For those looking to use some or all of the higher stocks and shares ISA allowance of £11,280, or perhaps transfer existing Cash or Investment ISAs, our head of savings and investment, Oliver Roylance-Smith, selects his latest ISA season top pick for both income and growth investments.
6% fixed income, conditional capital protection
The hunt for a competitive fixed income intensifies amidst the significant reduction in long term fixed rates, volatile bond yields and unexciting dividends from many FTSE 100 companies and UK equity income funds. However, by combining fixed income with conditional capital protection, the Enhanced Income Plan from Investec seems particularly well placed for these challenges and is proving popular with investors.
The investment pays an annual fixed income of 6% (monthly payments) regardless of the performance of the stockmarket. Your initial investment is returned in full unless the FTSE has fallen by more than 50% during the investment term and fails to recover by the end of the investment term, in which case your capital is reduced by the same percentage as the Index.
Top 5 reasons to consider this investment
1. Fixed income - receiving an investment income that is not reliant on the performance of the stock market is a rare thing as most investments only offer a variable income. This means you benefit from knowing the exact amount you receive at the outset, providing you with a healthy and predictable income stream.
2. High income - not only is the income fixed, but it is offered at a high level of 6% per year. This is considerably higher than the dividend yields available from many FTSE 100 companies and UK equity income funds.
3. Monthly income - another popular feature is the monthly payment frequency since this is the most useful in terms of budgeting, especially if you are looking to supplement existing income. Many other income investments only offer biannual or quarterly payments.
4. Fixed term - not only does the investor know how much they will receive and when it will be paid, the six year investment term is also fixed, so the investor knows exactly how long these payments will continue.
5. No hidden charges – there are no arrangement fees or annual fees associated with this investment, which compares favourably with the initial charges and annual management charges which usually apply to UK equity funds.
Fair Investment conclusion
Commenting on the Enhanced Income Plan, Head of Savings and Investment at Fair Investment Company, Oliver Roylance-Smith said: “Not only does it provide you with a high level of annual income, it is also paid to you regardless of the performance of the stock market. Another key feature of the investment is that it includes conditional capital protection – this means that your initial investment is returned in full unless the FTSE 100 falls by more than 50% during the term and is also below the starting value at the end of the 6 year investment term. If this happens, your initial capital will be reduced by the same amount as the fall in the Index.
The high level of fixed income and the monthly payment frequency makes for an attractive investment and with low interest rates, poor investment yields, a void of opportunities in the savings market and real uncertainties around future inflation, this plan provides a competitive balance of risk versus reward and could be considered by both savers and investors.”
The potential for 40.5% after 3 years or 67.5% after 5 years
With the FTSE at a relatively high level, finding attractive growth opportunities with a UK investment focus is a real challenge. This is where the Defined Returns Plan from Investec could offer an attractive upside.
This is a five year investment with the opportunity to mature early at the end of year 3. The returns on offer are 40.5% at the end of year 3, or 67.5% at the end of the five years, and will be paid provided that the FTSE is higher than its starting value on either of these dates (subject to averaging). Your initial investment is returned in full, unless the FTSE has fallen by more than 50% during the investment term and fails to recover by the end of the investment term.
Top 5 reasons to consider this investment
1. High returns - the returns on offer are compelling. 40.5% after three years equates to a compound annual return of around 12% whilst the five year return of 67.5% equates to a compound return of 10.85% per year.
2. Early maturity – although the plan does have a potential five year investment term, it also offers the potential for early maturity at the end of year 3, offering the potential for a high return over a relatively short timeframe.
3. Two high growth opportunities – since there is the potential to mature after three years, this investment offers two opportunities to receive a high return, catering for those investors who think that the FTSE could be higher that its current value over either a three or five year timeframe, even by just a single point (subject to averaging).
4. Fixed return - not only is the potential return on offer high, it is also fixed. This means that it is paid regardless of whether the FTSE has grown by the same amount, by more, or by less.
5. Potential to beat the market – if the FTSE has risen by more than the fixed return you will not receive an enhanced return. However, if the investment does produce a return after three or five years and the Index rises by less than the growth you receive, you will have outperformed the market.
Fair Investment conclusion
This investment has seen a significant increase in popularity in recent weeks as investors seek the opportunity for high growth while the FTSE remains at historically high levels. Commenting on the plan, Oliver Roylance-Smith, Head of Savings and Investment, said: “If you think the FTSE 100 could be higher in the next 3 to 5 years, even by as little as a single point, then this plans offers two opportunities to provide an attractive return - either 40.5% after 3 years or 67.5% after 5 years, provided the Index is higher than its starting value at either point (subject to averaging).
In return for the opportunity for such high returns, your capital is at risk if the FTSE falls by more than 50% during the investment term and also finishes below its starting level, in which case your initial investment will be reduced by 1% for each 1% fall. With the recent levels of the FTSE creating a challenge for investors, this plan offers a compelling opportunity to capture high returns, even if the Index only rises by a small amount.”
Dual ISA eligibility – tax free income and growth
Both of the above investments offered through Fair Investment Company can accept new ISA investments and you are also able to transfer existing ISAs. Any income or growth payment from an investment held within an ISA is not then subject to tax. For the Enhanced Income Plan this will result in a high level of tax free income for the investor - attractive in any economic climate – whilst the high growth returns from the Defined Returns Plan would also be tax-free.
For the current tax year (2012/13) the annual allowance is £11,280 per individual, increasing to £11,520 from 6th April 2013 (2013/14 tax year) and you can apply to invest the maximum (or less) for each into both tax years right now. These investments also accept transfers from Stocks & Shares ISAs as well as Cash ISAs but you should be aware that once Cash ISAs are transferred to a Stocks & Shares ISA, they cannot be transferred back to a Cash ISA. Please note that this information is based on current law and practice which may change at any time.
Low minimums – available now
Both of the investment plans detailed are open for direct investments (non-ISA investments), new Investment ISAs, and ISA transfers with a minimum investment of £3,000. Please note that since these investments are offered for a limited period only you should also check the ISA transfer deadline.
Click for more information about the Investec Enhanced Income Plan »
Click for more information about the Investec Defined Returns 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 depends on your individual circumstances and may change.
The investments referred to in this article 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 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.
© Fair Investment Company Limited