None of the information provided is investment or tax advice.
You should always read the associated risks before deciding whether to invest. These can be found on the product pages as well as in our risks overview.
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Do you know your government bonds from your premium bonds? Or how bonds compare to other asset classes?
At Downing, we provide solutions that match your investment challenges. Our bond platform provides an opportunity to invest in asset-backed unlisted corporate bonds in sectors such as healthcare, hospitality, wholesale finance and property.
We understand that it can be hard to navigate the many types of bonds available so we put together a quick guide.
Bonds are a type of investment that represent a loan from an investor to a borrower, much like an ‘I owe you’. When you purchase a bond, you (the bondholder) are lending money to the bond issuer (borrower) in exchange for regular interest payments, also known as coupons. This is with an understanding that the initial invested amount (face value of the bond) will be repaid to you when the bond reaches maturity, which is at the end of the agreed term. The return that you receive from the bond (the initial investment amount plus the interest earned) is referred to as the yield. Bond issuers may include banks, private companies, or governments, seeking funds for various purposes such as expansion activities or to fund development projects.
Alice will receive an annual interest payment of £500 each year (which totals £2,500) and, when the bond reaches maturity, she will get back the initial £10,000 she invested. This is assuming there have been no defaults.
Please note that the returns displayed above are for illustrative purposes only, capital is at risk and interest payments are not guaranteed.
Like their name suggests, these are bonds issued by the government of a country to raise funds for public spending, infrastructure projects, or managing budget deficits, amongst other things. In the UK, they are commonly known as gilts but go by different names in other countries, such as T-bills (treasury bills) in the US,Bunds in Germany, and OATs in France.
Gilts are known to be relatively safe investments because they are backed by the UK government, and typically offer fixed or variable interest payments, known as coupon payments. They are considered highly liquid as they can be traded on secondary markets. This also means that the value of the bond can go up as well as down as interest rates fluctuate, with any capital gain being exempt from tax. Some investors may experience a loss if they need to exit the Bond before the maturity date.
Unique to the United Kingdom and backed by the government, Premium Bonds are a type of savings product offered by National Savings and Investments (NS&I). Unlike traditional savings accounts that pay interest, Premium Bonds offer the chance to win tax-free prizes in a monthly prize draw.
Each £1 invested equates to one Premium Bond that will be entered into a monthly draw. There is a £25 minimum investment and a £50,000 maximum investment, and monies invested can be redeemed at any time. If you are looking for regular income or a product that keeps up with inflation, it is likely that this type of product is not for you.
Bond ETFs are investment funds traded on exchanges such as the London Stock Exchange (LSE). Unlike individual bonds, the investor is purchasing shares in a fund that invests in bonds.
They are usually made-up of a variety of bonds, including corporate bonds, government bonds and municipal bonds (issued by local councils) and so can provide investors with exposure to a diversified bond portfolio with just a single trade. Holding a number of bonds with varying maturity dates means that the Bond ETF receives regular coupon payments, which are passed onto investors in the form of monthly or six-monthly interest payments.
Unlike some of the other bonds we have mentioned in our guide, there is not a fixed repayment date, and investors can buy or sell shares in the Bond ETF at anytime. While they are generally less volatile than stocks and shares, they are subject to fluctuations in value due to interest rates, credit risk and market sentiment –factors to consider before making an investment decision.
Corporate Bonds are debt-based securities issued by private and public companies. They fall broadly under two categories, listed and unlisted. There are various reasons why a company would issue a bond such as expansion, research and development, as well as refinancing existing debt.
The main difference between listed and unlisted corporate bonds, lies in their trading status and accessibility to investors. Listed bonds are traded on public exchanges or bond markets. Being listed on exchanges means they provide greater liquidity. This is not the same as with stocks and shares as investors are still loaning money to a business in return for interest, rather than purchasing a share of that business.
Unlisted corporate bonds are not traded on public exchanges and instead are sold privately, typically to institutional investors, such as pension funds, insurance companies, and asset managers. They can be an attractive option for companies looking to raise funds as they can provide more flexibility and lower administrative costs, compared to listed bonds.
Downing Bonds is a platform offering investors access to unlisted corporate bonds and enabling them to diversify their portfolios with those fixed income opportunities. The platform was established in 2016 to provide everyday investors access to investments historically inaccessible because of their entry requirements.
We benefit from Downing’s 35+ years of investment management experience. Our award-winning investment teams not only seek out attractive investment opportunities, but also work with those businesses to help reach their key objectives.
Downing Bonds focuses on lending to asset-backed businesses across diverse industries such as property development, care homes and hospitality. Investors can choose which industries to invest in and while seeking competitive returns they are also contributing directly to the sectors they are passionate about.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. For personalised advice, consult with a financial adviser.
Important notice: This guide is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment or tax planning decision. This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
If you are a financial adviser, or discretionary fund manager call 020 7630 3319 or email us at sales@downing.co.uk
If you are a private investor call 020 7416 7780 or email customer@downing.co.uk