Published On: Wed, Aug 12th, 2015

Risks and rewards of mini bonds

This question from George C is typical of several we have received lately as savers face up to interest rates likely to remain low for the foreseeable future.

George, about to retire, holds Isas, but has never dabbled before in mini bonds.

But the returns many of those promise, usually in the 6 to 8 per cent range, look tempting.

Bonds share the same general name but they vary hugely, which often confuses savers.

MINI BONDS 

Mini bonds are a relatively new type of investment and form part of the alternative lending market that has grown up in the past few years.

They are a way for mainly new and smaller companies, and some larger, established ones as well, to raise capital directly from private investors through an online crowdfunding platform.

This crowd pools their varying funds to provide loans to a company over a fixed period, often three to five years.

They get equity in the firm, return of their original capital, dividends if the company hits its targets and other rewards in the shape of the business’s goods and services.

Mini bonds also have a strong appeal for those with emotional attachment to a particular business or sector, for example a sweet shop chain or sport, such as Surrey Country Cricket Club’s imminent scheme, or if they have altruistic motives for helping a newbie thrive.

Think tank Nesta estimates that last year the overall alternative finance market was wor t h £1.74billion

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Daily Express :: Finance Feed

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