23rd March 2018
With the end of the tax year fast approaching (5th April), there is a limited time frame with which 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 take full advantage of this generous tax scheme from the Government.
The Innovative Finance ISA (IFISA) was first introduced in April 2016, and allows investments on qualifying P2P platforms to be held within a tax wrapper like a traditional ISA.
Crowd2Fund’s IFISA is unique in that it allows investors to directly choose the companies which they invest in. Conversely, other providers on the market offer a pooled investment approach, with individuals not being given the opportunity to invest in companies directly, and instead investing in a fund type structure.
Alongside, its direct investment approach other benefits of Crowd2Fund include allowing investors to build their own bespoke portfolio by investing in a range of different products (debt loans, venture debt, revenue loans) alongside being able to buy or sell loan parts through use of The Exchange.
Whilst Crowd2Fund’s main investment approach is to facilitate direct investing, the platform is also flexible enough to offer a Smart Invest feature which enables an AI powered pooled investment approach for those who choose to do so.
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.
P2P lending in its original and purest form consists of platforms letting investors choose the businesses they individually wanted to lend to.
However, the two largest P2P lending platforms in the UK— both of which are in the process of rolling out their own IFISAs— have removed the facility to invest in businesses directly.
Whilst it is hard to attribute their changes to becoming IFISA regulated, this restricts choice for investors and makes them less in control of their P2P investments.
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.
Whilst the platform conducts its own enhanced due diligence processes, with zero businesses to date defaulting, investors can look up financial statements on Companies House and the profiles of directors on LinkedIn. Pooled funds make this approach redundant for investors due to them not being able to choose the individual businesses which they invest in.
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 deploy funds within sectors which they specifically have an interest in and which they understand. For example, popular sectors on Crowd2Fund include hospitality and technology.
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 more 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 due to the rate of interest offered being artificially reduced.
Crowd2Fund does not take any institutional investment so the interest rates of campaigns is set by their true credit worthiness. This results in better returns for investors. 4Th Way, an independent peer-to-peer lending platform benchmarks the data of providers and found that Crowd2Fund’s returns average 9.58% APR (before fees and bad debt) outstripped the largest competitor in the market.
Increased Choice And Flexibility With The Exchange and Smart Invest
Crowd2Fund’s Exchange offers flexibility by being one of the few platforms to let buyers and sellers trade loan parts with one another. These qualify for the IFISA so act as another feature to give investors even more choice in their investments, alongside also allowing for holders 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.
Additionally, whilst the pooled funds approach is not for everyone it does have benefits in that it allows investors to take a hands off approach with regards to managing their investments. 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.
