Warning over bonds' 'risky' 6% promise

Investors are being tempted by high returns, but new products are not as safe as they seem.

Nuffield Health this week became the latest British organisation to offer fed-up savers attractive rates on bonds. The charity is inviting people to invest between £1,000 to £250,000 in its bond and get a fixed annual return of 6 per cent for five years.

It follows a similar launch by the Jockey Club last month. Its Racecourse Bond pays a total 7.75 per cent in cash and benefits for five years. The latest moves have prompted Capita Registrars to calculate that the minibond market will reach £1bn this year and £8bn by 2017 as companies look for alternative ways to raise finance.

Justin Cooper, chief executive of Capita Registrars said: "There is a growing interest in this new asset class. Brands are able to raise capital at a time when lending from banks is challenging and connect with their client base and involve them in the development of their business."

Indeed, the Jockey Club bond includes Rewards4Racing Points – worth 3 per cent a year – which can be used to buy discount tickets or food and drink at racecourses.

But the bonds have come under criticism from a number of sources as experts warn that the companies issuing them don't make clear the risks to investors.

Kevin Doran, senior fund manager at private bank Brown Shipley, said: "The Nuffield issue underlines the importance of investors understanding what they are buying because there are important differences between it and some recent retail bond launches."

True, retail bonds are listed on the Stock Exchange, which means that can be bought and sold. Investors, therefore, don't have to lock their cash away. With the minibonds, which have also been issued by John Lewis, Hotel Chocolat and Leon, among others, there is no market for ther bonds.Investors must simply sit tight for the length of the term.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said: "I do not think unlisted investments are appropriate for the majority of retail investors. There's no liquidity or secondary market where investors can get transparent pricing to determine the value of their investment."

Brian Dennehy, managing director of Fund Expert, fears the perks offered by some bonds are also only of interest to a relatively few people. "We looked at the Jockey Club bond but I got the impression that it was just for hobbyists."

But Mr Dennehy is also concerned about the risks of investing in retail or minibonds issued by just one company. "Some of the bonds launched in the last six months are very opportunistic," he said. "They have been sold on yield compared to deposits, which is very misleading.

"Investors need to be careful. The bonds are issued directly by the company to raise money, so when you buy a bond of one company, rather than a fund invested into bonds issued by many firms, there are many risks."

The key risk is that they are not covered by the statutory safety net, the Financial Services Compensation Scheme, so investors risk losing their money if the company goes bust.

Caspar Rock, chief investment officer of Architas, warned: "Single company-specific risk is only suitable as part of a diversified portfolio.

"An alternative option for retail investors is to consider active corporate bond funds from the likes of M&G, Invesco Perpetual or Kames Capital," he said. Mr Rock added that a cheaper option could be a tracker fund from BlackRock.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing