Direct investment or pooled-fund IFISAs
25th February 2020
This April marks the fourth year that the Innovative Finance ISA (IFISA) has been available. This also means the end of the financial year is looming (5th of April), so now is the time to take advantage of your £20,000 allowance. Since the IFISA was first created, the industry has developed more offerings to sophisticated investors, to offer more choice with your allowance. IFISA investment platforms are now broadly split into two categories; Direct Investment, when you invest directly into businesses, or Pooled Investment, where your funds are distributed to an assortment of businesses for you.
If you’re new to IFISAs, they offer a tax-free investment, similar to a traditional ISA, with a specific focus on growing businesses in the UK.
If you’re an investor looking for choice, Direct Investment offers the most freedom, and therefore the most choice, while Pooled Investment offers convenience. Direct Investment allows you to tailor your portfolio’s diversification, explore your investments in detail, and realise the true market interest rate of your investments. All of these reasons are why Crowd2Fund created the most sophisticated platform to provide an intelligent approach to Direct investments.
With most pooled investment platforms, you can’t tailor your IFISA investments to your own existing personal portfolio, because the investment sectors are broad. When you invest directly you can not only select businesses that fit your own portfolio from a business type perspective, but also from a risk profile perspective.
If you’re looking for industry diversification, direct investments offer an incredibly broad range, including some industries you might already understand on a personal, or professional level. That might be The Coconut Tree, looking for funds to open their 7th restaurant, or it might be Planks Clothing, an eco-friendly skiwear brand.
When it comes to risk profile, Crowd2Fund offers a variety of capital choices to the businesses that list for investment on the platform. If you have a higher risk tolerance, you might invest in venture debt opportunities, with rates of at least 14%. Or if you’re looking for something lower risk, you could engage in one of the more established businesses, with rates starting from 9%.
In a pooled investment platform, you usually can’t perform personal due diligence on the underlying companies you’re investing in. Direct Investments offer more detail, more transparency and the opportunity to ask questions. Each business on Crowd2Fund includes links to the LinkedIn profiles of the directors, an open Q&A and necessary operating financials for the business. This additional detail into the businesses you explore gives you the opportunity to engage with, and apply your own personal expertise to your investments. And as an added bonus, your investments sometimes offer a tangible reward that amplifies the connection you develop by helping them grow. Taking our previous example of The Coconut Tree, their campaign includes direct discounts and free meals for investors.
If you were considering a pooled investment, Crowd2Fund offers an AI driven robo-investor called Smart-Invest, to automatically lend to businesses which match your risk appetite. The benefit here is that you’re still able to review the underlying businesses and sell the loans on the Crowd2Fund exchange. This combination offers more transparency, flexibility and liquidity than most pooled-fund providers.
Crowd2Fund doesn’t have businesses underwritten by institutional investors, so the interest rate of each opportunity is the market’s opinion of that investment’s credit worthiness. In most pooled investment IFISA platforms, the interest rate you receive is usually artificially lower than the market rate, and so, investors often get a lower rate. This is because institutional investors underwrite the loans and assign their own risk profile to the business.
Whether you are using your £20,000 IFISA allowance for the first time this year, or you’re a seasoned investor looking to use up your allowance again, direct investments offer a personalised, engaging and effective form of tax-efficient investing.
Capital at risk.
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.