ISA Season Selections – Investment ISAs
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.
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.
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.
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.
Up to 9.48% yield, quarterly payments
The FTSE 4 Quarterly Income Plan offers the potential for up to 9.48% annual income dependent on the performance of four FTSE 100 companies. An income payment of 2.37% 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. 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 – so you could lose some or all of your initial investment.
Experienced investors – up to 13.0% annual income
Our experienced investor section contains a number of investment opportunities for our existing investors and those who have experience of putting their capital at risk. A recent addition that has proved popular is the FTSE 5 Income Kick Out Plan from Mariana. This is a five year investment with income and return of capital based on the performance of five FTSE 100 listed shares – their values are taken at the start of the plan and for each share that is at or above 90% of this value at the end of each quarter, a return of 0.65% is payable. Therefore, if all five shares are at or above 90%, the maximum quarterly payment of 3.25% is paid, equivalent to 13% each year. No income will be paid each quarter for any share below this level.
The plan also has the opportunity to kick out if all five shares are at or above their starting values at the end of each quarter, from year one onwards. If the plan does not kick out, your initial capital will be returned unless any of the shares have fallen by more than 50% at the end of the five year term. If they have, your capital is reduced by 1% for each 1% reduction of the worst performing share, so you could lose some or all of your initial investment.
Where returns are based on a small number of FTSE 100 listed shares rather than the FTSE 100 Index itself, these plans should be considered higher risk investments.
For those looking for growth instead of income, there are also a wide range of investment opportunities available.
The potential for 10.5% annual growth even if the market stays flat
Kick out investments combine the potential for high returns with the opportunity to mature early, or ‘kick out’, at the end of each year. Investec’s Enhanced Kick Out Plan currently offers the highest rate for a kick out investment based on the FTSE 100 Index and will return 10.5% per year (not compounded) provided the value of the Index at the end of each year (from year 2 onwards) is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Your initial capital is at risk if the FTSE falls by more than 50% during the investment term and also finishes below its starting value, in which case it will be reduced by 1% for each 1% fall – so you could lose some or all of your initial investment.
The potential for 7.75% annual growth even if the market falls 10%
Defensive plans offer the opportunity for investment level returns even if the market goes down slightly. Investec’s Defensive Kick Out Plan will mature early and provide an annual return of 7.75% (not compounded) provided the FTSE 100 Index at the end of each year (from year 3 onwards) has not fallen by 10% or more below its value at the start of the plan. If the value is below this level, the investment continues to the next year. The plan also contains conditional capital protection which means that your initial investment is returned in full unless the Index has fallen by 50% or more at the end of the term. If it has, your initial capital will be reduced by the same amount as the fall in the Index so you could lose some or all of your investment.
Experienced investors – up to 20% annual growth from the energy sector
For those looking for the potential for higher double digit growth returns there have been a number of new launches focusing on the energy sector, two of which have been added to our experienced investor section. The Crude Oil Kick Out Supertracker from Meteor (Morgan Stanley acting as counterparty) offers two opportunities for high returns, both linked to the performance of crude oil as measured by the S&P GSCI Crude Oil Excess Return Index (the Index). If the value of the Index at the end of year 2 is at or above its value at the start of the plan, investors receive their original capital back along with a growth payment of 27%. If it is lower, the plan continues to the end of the five year term and your return is equal to 1.5 times any growth in the Index, with no upper limit.
If the Index is lower at the end of the term, you will not receive any growth and your initial investment is returned unless the Index has fallen by more than 50% at any time during the term. If it has, and the Index also finishes below its starting value then your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
The Defensive UK Energy Basket Kick Out Plan (Morgan Stanley acting as counterparty) has a maximum term of three years and offers a potential 20% after year one, based on the performance of three FTSE 100 listed shares from the energy sector. If the level of all three shares is at or above their starting level after 12 months, the plan will mature early, or ‘kick out’, and provide a 20% growth payment. If one or more is lower the plan continues but can kick out every quarter thereafter provided the value of all three shares meets the required level – if it does, the return is 20% plus an additional 5% for each quarter.
If at the end of the three year term no growth is achieved, your capital is at risk if the lowest performing share has fallen by more than 40% of its value at the start of the plan. If it has, your original capital is reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
Where returns are based on a sector specific Index or a small number of FTSE 100 listed shares rather than the FTSE 100 Index itself, these plans should be considered higher risk investments.
Important reminder – why do an ISA?
One of the main reasons for using an ISA is it’s tax treatment since no tax is payable on the income you receive or on any capital gains that you make, and there is also no need to declare any ISA income or capital gains on your tax return. They therefore provide tax efficient income or growth on your investment, the benefit of which can be compounded over time. See our Top 10 Tips for ISA season for further help and tips on how to make the most from this important time of year. Please also note that with all of these investments, our experienced Investment Customer Services team is always on hand to answer any questions you may have.
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 due to the performance of shares listed on the FTSE 100 Index or the S&P GSCI Crude Oil Excess Return Index. As shares prices and the price of commodities can move by a wide margin these plans represents a higher risk investment than those based on equity indices (such as the FTSE 100 Index) as a whole.
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 FTSE 100 listed shares, the S&P GSCI Crude Oil Excess Return Index and the FTSE 100 Index is not a guide to their future performance.