9.85% Annual ROI – What you need to know about Corporate Bonds
9.85% ANNUAL ROI – WHAT YOU NEED TO KNOW ABOUT CORPORATE BONDS
Corporate bonds are a proven business model that are becoming more and more popular amongst investors who want lower risk investments that offer higher returns than shares and savings. The concept is simple: you invest and loan money directly to certain companies, many of them Stock Exchange-listed, for a fixed period of time and receive regular returns, sometimes as high as 10% annually. With bank and savings interest rates at an all-time low – and looking to stay that way for the near future – corporate bonds are an attractive option that are certainly worth investigating.
When businesses are looking to raise capital, they issue corporate bonds for purchase. In simple terms, it’s a certificate of debt – you lend money to a company on a short-term loan in return for an IOU. You commit to investing for a fixed term – usually five or ten years – and once the loan has ended, the sum you invested is returned to you in full. You have also benefitted from an attractive interest rate for the duration of the loan. Businesses rely on this type of investment strategy and shrewd investors are increasingly looking to add corporate bonds to their investment portfolio. There is also the option to invest in retail bonds or the more risky mini bonds, but if you’re after guaranteed capital, high rates of return and regular annual payments, it’s time to consider corporate bonds.
It pays to carry out due diligence and do your research before committing to any investment scheme. We have found an attractive proposition from a Gibraltar-based Limited Partnership that specialises in global loan markets, with a primary focus on international short-term consumer finance. It is uniquely placed and the schemes guarantee higher than average rates of return, with minimal risk. Partnering with more technologically advanced, ethical and well-administered companies, it has sound knowledge of the operators within that sector.
HOW IT WORKS
Investors are issued with a loan note for £100. From the £100, £20 is paid by the company towards the insurance that provides the 95% capital guarantee. The company then loans the remaining £80 to the American-based short-term lender at a rate of 50% per annum.
The short-term lender pays interest to the company at a rate of 12.5% per quarter on the original £80 loan. The short-term lender repays the capital amount of £80 on redemption day. In turn, the company pays the investor 2.4625% per quarter on the original £100, and refunds the original £100 to the investor on the loan note redemption date.
THE MARKET
Short-term loans are an American phenomenon and their popularity has steadily been growing in the UK and other European markets over the years. The premise is that they offer relatively small sums (usually up to $500) for a short-term loan for around two weeks. In the US alone, it is estimated that 25% of the population (70 million people), regularly use these services. And while profits from the sector are hard to quantify, some experts say the figure is as high as $25 billion annually.
THE OPPORTUNITY
This is a British Pound-denominated secured medium-term note, tailored specifically for the investment and pension market. In particular ISA, SIPP, SSAS and QROPS.
CORPORATE BOND WITH 95% CAPITAL GUARANTEE
KEY FEATURES
Minimum investment: £10,000
Annual returns (net before tax): 9.85% paid every 12 months
Recognised Stock Exchange-listed company: Yes
Capital growth potential: No
Location: Global
Investment term: Five years, but investors can sell at any time with 30 days’ notice, subject to a 5% penalty
Investment type: Indirect participation/corporate bond
Currency: GBP
Available to cash investors: Yes, including ISA investors
Available to pension investors: Yes, subject to IFA approval