Is this one of the best fixed rate Bonds at 12% PA?

9th February 2015 | By Editor

At 12% pa, is this one of the best fixed rate bonds on the market? The returns on some of the best fixed rate bonds can offer an attractive alternative to those on low-return cash savings accounts, but you need to understand the risks as well as the benefits.

What is a bond?
A bond is an alternative method for a company to borrow money directly from investors instead of a bank. It is effectively a loan for a fixed period of time (or “term”) with an agreed rate of interest (or “coupon”). Typically, these loans are three to five year agreements. A coupon or interest is paid either quarterly, bi annually or annually. When the bond reaches “maturity” the company gives you your original investment capital back plus any interest due.

The key benefits
The biggest benefit is the return which is 12% pa but with the added benefit of having security on your investment. This ensures there is a tangible asset that can be liquidated in the event of a worst case scenario. In this case, the fixed rate bond is based on property which provides the security. An independent FCA regulated trustee overseas the running of the investment too. The other key benefit is that there are no hidden or additional fees which can often cut into the return on interest (ROI). Barrington Howe is an authorised investment agent for the bond and is based in London. We specialise in asset backed secure investment opportunities.

  • 3 Year fixed term Bond
  • Fixed Exit Date
  • 12% pa fixed return paid every 6 months
  • FCA regulated Security Trustee
  • Strong track record, all investors paid out over the last three years

Understanding the risk
Unlike traditional bonds, unregulated bonds cannot be freely traded. That means other than in exceptional circumstances your money is tied in for the full term. For investors who may need the cash during the term, it is a disadvantage. However, it may be a benefit as the bond’s value is not subject to the sometimes volatile fluctuations of the markets during the agreement term, just the viability of the company issuing the bond; as long as the bond issuer meets its obligations, you know exactly how much you are going to get in interest and at the end of the term. In this case, 12% a year for three years. A total of 36% interest. If the bond is asset backed with a form of security, this gives greater strength to the investment model.

Aside from the lock-in, the biggest disadvantage of unregulated bonds is that they are not covered by the Financial Services Compensation Scheme. If the company goes bust you may lose some or all of your money. You have to be confident the issuer has the financial strength and ability to meet its obligations. With a secured bond, there is always a tangible asset as a failsafe.

The Colonial Capital Bond
The Colonial Capital Bond is issued by Colonial Capital plc through its authorised agent Barrington Howe. This fixed rate bond offers 12% pa for three years. It specialises in buying below market value properties in Chicago and refurbishing them to a high standard before renting them through a US Government Social Housing program to families. The properties have their market values raised through the refurbishment and an exit strategy for guaranteed rents through the US Government. The fixed rate bond issuer is a UK PLC with an FCA regulated security trustee.

The Colonial Capital Bond has been designed to try and mitigate many of the risks associated with fixed rate bonds. Investors have two distinctive levels of security. Firstly, an FCA-authorised investment manager has been appointed to act as security trustee with the power to intervene and seize the assets of Colonial Capital plc if it fails to fulfil any of its obligations to its investors. Secondly, Colonial Capital Bond plc is a wholly owned subsidiary of Colonial Capital Ltd, which is standing as guarantor – so the parent is effectively underwriting the obligations to the company’s bond holders.

This bond also gives you the choice of compounded interest by rolling up your interest over the 3 years. With a compounded interest of 14% per annum, is this one of the best fixed rate bonds?

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