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Are all Innovative Finance ISAs the same?

They're regarded as a brilliant way to support entrepreneurs growing UK businesses while earning great tax-free returns, but not all IFISAs are the same...

8th February 2019

With the end of the tax year fast approaching (5th April), there is a limited time frame to utilise the full £20,000 ISA allowance. This has to be used up in the current year and cannot be carried forward, so the next couple of months present a timely opportunity for investors to assess their current investments and ISAs.

The Innovative Finance ISA (IFISA), first introduced in April 2016, allows investments on qualifying peer-to-peer platforms to be held within a tax-free wrapper like a traditional ISA. They’re regarded as a brilliant way to support entrepreneurs, growing tangible businesses in the UK, while earning great returns. There are many IFISA providers out there now, but they can offer very different services.

Direct Investment vs. Pooled Investment IFISAs

There are currently two different types of IFISAs on the market: one which allows investors to directly choose the individual businesses they lend to; the other operates a pooled investment approach.

Peer-to-peer lending in its original and purest form consists of platforms letting investors choose the businesses they individually wanted to lend to. However, the largest P2P lending platforms in the UK have removed the facility to invest in businesses directly, restricting the autonomy of investors. 

How Crowd2Fund’s Direct Investment IFISA Stands Out From The Competition? 

Due Diligence And Transparency

Unlike pooled investment IFISA platforms, Crowd2Fund’s direct model allows investors to perform their own due diligence on individual companies before they invest in them.

While the platform conducts its own enhanced due diligence processes, resulting in a low default rate, investors can look up financial statements on Companies House and the profiles of directors on LinkedIn. Pooled funds make this approach redundant for investors, as they are not being able to choose the individual businesses themselves.

The option to conduct personal due diligence facilitates investors being able to actively invest and monitor how their companies are performing over a period of time.

Build Your Own Portfolio

The direct investment model allows investors to fund sectors they’re specifically interested in, understand and want to support.

Additionally, they are able to build a portfolio to match their risk appetite, weighted by the diverse range of debt investments that Crowd2Fund offer. Those with more of a risk tolerance may invest some of their funds in venture debt campaigns, which tend to carry interest rates of at least 10%. Conversely, more prudent investors may be interested in campaigns which are security backed and will carry a lower interest rate than unsecured businesses.

Interest Rates Not Set By Institutional Investors

Pooled investment IFISA platforms tend to have the interest rates of campaigns set by institutional investors underwriting businesses. This can result in investors getting a raw deal as this rate is often artificially reduced. Crowd2Fund does not take any institutional investment so the interest rates of campaigns are set by their true creditworthiness. This results in better returns for investors. 

Increased Choice And Flexibility With The Exchange and Smart Invest

Crowd2Fund’s Exchange offers flexibility by being one of the few platforms to let investors buy and sell loan parts with one another. These qualify for the IFISA so act as another feature to give investors even more choice in their investments, as well as a chance to sell some of their loan parts for a profit. This increases the liquidity of investors portfolios by letting them divest of live debt funds.

Whilst the pooled funds approach is not for everyone it does have benefits for more hands-off investors. Investors can also partake in pooled funds activity via the use of Crowd2Fund’s Smart-Invest feature, which uses AI technology to automatically lend to businesses which match their risk appetite. However, investors are still able to review and sell the loans set up with smart-invest, offering more transparency than most pooled-funds.

We believe investors deserve to know and choose where they invest their savings, so they are free to use their own judgement.

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