Here, it explains to Bridging & Commercial how the launch of the IFIsa has impacted Crowd2Fund and those who have invested in it.
What is the Innovative Finance Isa?
Investors continue to be plagued by a toxic mix of dwindling interest rates and sustained market volatility, both of which have generated a low-return investor environment.
Therefore, as the pools of capital are drying up in the main markets, now – more than ever – alternative investment products are fast becoming the go-to choice for savvy investors looking to win long term – especially those that offer tax advantages.
The Innovative Finance Isa is one such product that has come to the surface this year and is increasing in popularity.
With other platforms now coming out of the woodwork looking to offer similar products, it’s essential that investors are aware of those that are doing things right.
Crowd2Fund is one of a handful of platforms directly regulated by the Financial Conduct Authority and because of this, and the company’s close adherence to serve the necessary compliance and investor needs, the business has recently rolled out their Innovative Finance Isa, becoming the first to come to market.
The Innovative Finance Isa allows people to invest up to £15,240 per year via peer-to-peer platforms and any earnings gained are tax free.
Investors are also able to transfer their old Isas (stocks and shares, for instance) and retain their previous year’s Isa earnings within the tax-efficient wrapper.
As investors continue to look further afield from traditional asset classes to meet their desired returns, the IFIsa offers a generous and significant tax incentive, where the interest rates are much higher than an old cash Isa, in which investments average at around 0.5% APR.
For example, Crowd2Fund’s model is such that the interest they can offer is even higher, for those investors with the appetite to take on additional risk in comparison to old cash Isas.
This is, in part, because investors’ capital in the IFIsa is not protected by the Financial Services Compensation Scheme.
Impact of IFIsa on Crowd2Fund
As a result of the IFIsa, Crowd2Fund has seen continued success since launch.
Having traded for more than two years, Crowd2Fund has successfully managed to deliver consistently higher returns of around 8.7% APR, and have had 0% defaults to date.
The fundamental difference between Crowd2Fund and other peer-to-peer platforms and larger investment funds is that it only works with private, individual investors.
Many of the platforms in the market deploy funds via institutions, which provide wholesale debt from a large financial provider such as a bank.
The inclusion of an additional party (middleman) – and the commission the platform subsequently has to pay them – eats into the interest available for the end investors, as the investment opportunity is offered at the same, wholesale price as the institutions.
In cutting out this extra link in the value chain, disintermediating the middleman, more interest is made available for the individual investor, meaning higher interest.
The added advantage is that the individual investor (who all these platforms ought to be serving in the first place!) is able to invest their capital direct into the business they choose.
This cash injection direct into businesses is generating a key stimulus to support the UK economy at large.