Investment News 2013 Investment ISA Selection 18471931
2013 Investment ISA Selection
19 March 2013 / by Oliver Roylance-Smith
With the 5th April end of tax year deadline close at hand, we bring you our selection of the best investment plans currently available to help you decide how best to make use of this valuable tax break.
These plans 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 fixed return.
Conditional capital protection
Unlike investment funds – where all of your capital moves in line with fluctuations in the market – these plans contain what is known as conditional capital protection. This means that you will receive a return of your capital at the end of the investment term, as long as any fall in the value of the FTSE has not exceeded a specified amount, normally 50% of its starting value.
Income – 6% fixed income (monthly payments)
Against the backdrop of low savings rates, above target inflation, and volatile bond and dividend yields, it is easy to see why Investec’s Enhanced Income Plan has proved to be our most popular income plan so far this year. With a high fixed income of 6%, paid to you monthly regardless of the performance of the stock market, and no additional set up or annual charges, you know exactly from the outset how much you will receive (and when) for the six year fixed term.
The trade off is that your capital is at risk. The plan does contain conditional capital protection, which 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 years. If this is the case, your initial capital will be reduced by 1% for each 1% fall.
The minimum investment is £3,000 and the plan accepts applications for both tax years, as well as ISA transfers and non-ISA investments.
Growth – potential 9% per year
When the FTSE is at historically high levels, it is sometimes difficult to know whether it is a good time to invest or not. But this is exactly where the Enhanced Kick Out Plan from Investec – with the potential for a market leading headline return or 9% – could offer a compelling opportunity.
This investment can mature early, or ‘kick out’, provided the value of the FTSE 100 Index at the end of years 1, 2, 3 or 4 is higher (subject to averaging) than its value at the start of the plan – if it is, you will receive 9% for each year invested (not compounded). Therefore, although the FTSE does have to go up in order for the plan to mature, this can be by just one point.
Your initial capital is at risk if the FTSE falls by more than 50% during the 5 year investment term and finishes below its starting value, in which case it will be reduced by 1% for each 1% fall – arguably a fair trade-off for the potential 9% returns on offer.
Growth – potential 7.25% each year even if the FTSE goes down 5%
The FTSE 100 has continued to rise in recent months, but will this continue? For those investors who would prefer to have some protection against a slightly falling market, the Defensive Bonus Plan from Morgan Stanley offers an annual return of 7.25% (not compounded) provided the FTSE at the end of each year (from year 2 onwards) is no more than 5% below its value at the start of the plan.
The plan’s conditional capital protection 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 years. In this case your initial capital will be reduced by the same amount as the fall in the Index. So, if you’re not entirely confident that the FTSE will rise or you would like the potential for a competitive return even if it falls up to 5%, this investment could offer a compelling option.
Growth – potential 7% each year even in a slightly falling market
RBS’s UK Step-down Defensive Kickout Plan also offers a defensive investment, since it will return 7% for each year the plan has been in place (not compounded) provided the FTSE 100 Index is higher than a particular level at the end of each year (from year 2 onwards). The defensive part of the investment refers to the level falling by 3% each year (from year 2), falling to 85% of its starting value in the final year.
Your capital is at risk if the FSTE falls by more than 50% during the investment term and finishes lower than 85% of its starting value. If this is the case, your initial investment will be reduced by the same percentage as the fall in the FTSE.
This plan is therefore an attractive option for those who are prepared to put their capital at risk in order to receive potentially high returns, but who also want some protection against a falling market. An arrangement fee applies to this investment.
Growth – potential fixed return of 40.5% after year 3 or 67.5% after year 5
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 the Defined Returns Plan from Investec offers two opportunities to provide highly attractive returns. The investment returns either 40.5% after 3 years or 67.5% after 5 years, provided the level of the FTSE 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 FTSE currently at a relatively high level, this investment offers a compelling opportunity to capture high returns, even if the Index only rises by a small amount. An arrangement fee applies to this investment.
Make the most of this valuable tax break
The main reason for making sure you use your annual ISA allowance each year is the tax break. No tax is payable on the income you receive on any capital gains that you make, and there is no need to declare any ISA income or capital gains on your tax return. Investment ISAs therefore provide tax efficient income and growth, the value and benefit of which is compounded over time. Tax treatment depends on legislation and your individual circumstances which may change in the future.
All of the plans detailed are available as a Stocks & Shares ISA and accept ISA transfers with most allowing you to take out your ISA for the next tax year at the same time as the current tax year.
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. Before transferring an ISA please check there are no penalties for withdrawal from your existing ISA provider.
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. 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.
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