Income investments – up to 9% income
Our Top 3 income selections
Our selection of income investments is based on the main features investors are looking for when it comes to finding the best income opportunities available…
7.62% fixed income, monthly payments – paying 7.62% fixed regardless of the performance of the stock marekt, the FTSE 5 Monthly Income Plan from Meteor is the latest income plan to be added with Morgan Stanley acting as the counterparty.This investment is already proving popular with our existing customers and experienced investors.
Up to 9% income, quarterly payments – the FTSE 4 Quarterly Income Plan from Focus (Credit Suisse counterparty) offers 9% income provided the value of four FTSE 100 shares are at or above 60% of their value at the start of the investment.
All of the plans featured accept new ISA investments, ISA transfers and non-ISA investments. Remember, Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for savers who are having to face the impact of record low savings rates. Please note that Stocks & Shareas ISAs usually put your capital at risk and if you transfer a Cash ISA to a Stocks & Shares ISA you cannot then move it back into a Cash ISA at a later date.
Income a top priority
With cash offering record low rates, even if you tie yourself in for the longer term, many savers are being forced to join income investors in the hunt for higher yields. Many income investors have historically looked to funds or an investment portfolio to provide an income, but with typical yields on UK equity income funds currently under 4%, this may not be providing the level of income required and investors will be questioning whether capital growth will do enough to boost their overall returns.
Defined return, defined risk
This is why we choose to feature fixed term investments, which offer a defined income for a defined level of risk, with conditional capital protection one of their main appeals. Rather than having your capital exposed to day to day stock market risk, these plans will return your initial capital at the end of the term unless the underlying investment the plan is linked to (either the FTSE 100 Index or a number of FTSE 100 shares) has fallen by more than 50%. Investors can then make a decision to invest based on the likelihood of this happening in combination with the income on offer.
The Enhanced Income Plan from Investec was our most popular income investment in 2013 and continues to be a best seller. 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 5.64% (paid as 0.47% each month) which is high when compared to typical yields on investment 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.
Fair Investment view: “The high level of fixed income and the monthly payment frequency are popular features which, when combined with a fixed term, provides an investment with an attractive degree of certainty in those areas. With the uncertain outlook for interest rates and dividend yields, this plan offers a competitive balance of risk versus reward that could be considered by both savers and investors.”
The second plan in our Top 3 is also a fixed income investment, paying a fixed income to you each month regardless of the performance of the stock market. You therefore know at outset how much you will recieve and when. The reason why the level of income from the Meteor FTSE 5 Monthly Income Plan is much higher than the Investec plan is the return of your captial is linked to the performance of five FTSE 100 Index shares rather than the Index itself. This represents greater risk to your capital since if one or more of the shares finishes more than 50% lower at the end of the term, your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “If you are looking for a high level of fixed income, options for investors are limited and so the 7.62% on offer from the FSTE 5 Monthly Income Plan is very appealing indeed since over the term this equates to a return of just over 45%. Investors must though consider carefully the risk to their capital since this is based on the performance of five shares rather than an Index.”
With opportunities for very high income from our capital hard to come by, the recently launched FTSE 4 Quarterly Income Plan from Focus Solutions (Credit Suisse acting as counterparty) has already created significant interest. The plan offers the potential for up to 9% annual income dependent on the performance of four FTSE 100 companies. An income payment of 2.25% is made each quarter provided the value of all four shares is at or above 60% of their value at the start of the investment. However, if one or more shares are below this level, no income payment will be made for that quarter. The return of your initial investment also depends on the performance of the same four shares. On the final day of your investment should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “The 60% barrier means that each share can fall up to 40% and investors still receive 9% income is a compelling feature but the fact that income and the return of capital are based on the performance of four shares should be a key consideration. With typical yields on UK equity income funds under 4%, this investment could be a timely addition to those seeking high yield investment opportunities.”
No annual management charges
All of the ongoing charges associated with each plan are taken into account in the headline return so there are no annual management charges and no hidden surprises. This should be compared to a typical UK equity fund or portfolio which will often have total annual charges in excess of 1%. This annual cost associated with the management of funds perhaps helps to explain the number of funds which find it difficult to outperform the FTSE, especially over the medium term. This ongoing cost is not a feature of fixed term investments.
Discounts for larger investments
Discounts are also available for larger investments. Please click on the ‘more information’ links below to find out more.
ISA eligibility – tax free income
All three investments accept new ISA investments and you are also able to transfer existing ISAs. 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.
All of the above plans will accept the increased ISA limit of £15,000 for new ISA investments into the current tax year (2014/15). See the individual plan brochure for further details. The plans also accept transfers from Stocks & Shares ISAs as well as Cash ISAs.
Since these investments are normally offered for a limited period, please always note the ISA transfer and new investment deadlines for applications into the current issue.
Remember the total return
The market for income investments is full of attractive 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.
Savers looking for investment alternatives
With savings rates continuing at historically low levels and inflation rising, there is sizeable pressure mounting on savers to seriously consider what is the best home for their money. Unlike savings plans, investing inevitably puts your capital at risk and so unless you are prepared to lose some or all of your capital, this should not be an option.
However, should you consider the need to move some of your capital into investments or are considering additional investments or ISA transfers, these investments could each offer a compelling opportunity to potentially provide a competitive level of income while offering your initial capital some protection against a falling market.
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 potential income. Their conditional capital protection also means that your initial investment has some protection against a falling market since the FTSE 100 needs to fall by more than 50% before your capital is at risk. Combined with either a fixed or variable income and these plans can offer an attractive balance of risk versus reward.
Compared to investment funds
Some of the yields available from investment funds certainly catch the eye but it is important to remember that this income is not guaranteed and is subject to fluctuations. In addition, the treatment of your capital is different to the Investec plan in that there is no conditional capital protection – your capital is fully at risk on a daily basis.
This is important since the income yield and any rise or fall to your original capital should always be considered together since both have an effect on your overall return. For example, an 7% income yield is compelling in its own right but not so if it coincides with a 7% reduction in the value of your capital. However, this can of course work in your favour if capital growth is positive.
Fair Investment conclusion – Top 5 reasons
Our Top 5 reasons to consider our income selections:
1. High levels of income on offer – 7.62% fixed or up to 9% yield
2. Monthly or quarterly income – regular payments to help supplement existing income
3. Fixed term – know exactly what income is on offer and for how long
4. Conditional capital protection – offering some protection against falls in market or share prices
5. ISA eligible – make full use of your ISA allowance and transfer existing ISAs to receive tax free income
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 which are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.