Updated: 14/08/2015
Income investments are some of our most commonly requested investment plans – whether it’s investors who want to use their ISA allowance to receive income, or people transferring existing investments in the quest for higher returns. If you are looking for a high level of fixed income and want to know exactly how much you will paid, when, and for how long, the 4 Year FTSE 4 Monthly Income Plan could offer a compelling investment opportunity.
Savers and investors face contrasting fortunes
Income is without doubt the most common demand put on our capital and this requirement commonly increases the older we get. As we start to reduce our working hours or look towards retirement, the objective of finding a competitive income stream from our investments becomes increasingly important. As we continue to face income pressure from sustained low interest rates and with future uncertainty around what the recently record-breaking FTSE might yield in the coming years, the balance of risk versus reward on offer from this plan is certainly worth a closer look.
In a nutshell
The Meteor 4 Year FTSE 4 Monthly Income Plan pays a fixed income of 7.32% each year, with monthly payments of 0.61% paid to you regardless of what happens to the stock market. The risk is that the return of your capital at the end of the four year term is based on the performance of four FTSE 100 shares – Rio Tinto plc, International Consolidated Airlines Group, Pearson plc and Aviva plc. If the value of the lowest performing share is less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall. You could therefore lose some or all of your initial investment. The four year term and the monthly fixed income on offer may well appeal to income investors but you should also consider that there is a higher risk to your capital than an investment based on the performance of the FTSE 100 Index.
Fixed income
The latest issue of the plan offers a high level of income at 7.32% per year, but whilst yield on many traditional income investments is normally variable, one of the main features of the FTSE 4 Monthly Income Plan is that the income is fixed rather than being dependent on the performance of the fur shares. This means that the investor has the certainty of knowing at the outset exactly how much they will receive each and every year. However, you should note that the return of your capital is dependent on the performance of the four shares.
Monthly income payments
Another popular feature is the monthly payment frequency since this is often the most useful in terms of budgeting. With many UK equity income funds only offering twice yearly or quarterly payments, a monthly income payment may be an appealing feature for many investors, especially those looking to supplement existing income. At 7.32% on offer from the current version, this equates to 0.61% paid each and every month for the entire term of the plan.
Fixed term
The FTSE 4 Monthly Income Plan has a 4 year and two week fixed term and although you do have the option to withdraw your money early (and in this respect is not dissimilar to investment funds), the plan is designed to be held for the full term and early withdrawal could result in you getting back less than you invested. The fixed term is likely to appeal to those who wish to plan around this timeframe. Combined with a fixed regular level of income, the full plan terms are known at the outset, allowing investors to consider more clearly the risk versus reward prior to investing their capital.
Conditional capital protection
When considering investment options it is important to understand the balance of risk v reward. Inevitably, the opportunity to receive higher returns than might be available from cash deposits requires the investor to put their capital at risk.
The Monthly Income Plan contains what is known as conditional capital protection which means that the return of your initial investment is conditional on none of the four shares falling by more than 50% of their value at the start of the investment. However, if one or more falls by more than 50%, your capital will be reduced by 1% for each 1% of the lowest performing share. You could therefore lose some or all of your initial investment.
Fair Investment conclusion
Commenting on the plan, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “When considering your income options, it is important to fully understand how each investment works, as well as the risks that are being taken. Whether this is inflation risk, risk of capital loss or the risk of fluctuating yields, it should always be remembered that it is the income and capital loss/gain taken together that affect your overall return.”
He continued: “The high level of fixed income, monthly payment frequency and four year fixed term offers a degree of certainty not usually found with an income investment. Compared to other income alternatives or investing directly in equities this may be appealing however investors should also consider that in return for a higher fixed income, there is a higher risk to your capital than an investment based on the FTSE 100 Index as a whole.”
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No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may change.
This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the four shares listed, and of the FTSE 100 Index, is not a guide to future performance.
