IFISA returns on the rise
Investors are enjoying higher returns from Innovative Finance ISAs (IFISAs) in the latest tax year, exclusive research from Peer2Peer Finance News has revealed.
As at the end of February 2023, a fully diversified IFISA portfolio spread across all 41 available providers would return an average of 8.83 per cent, according to the target returns stated for the 2022/23 tax year.
By comparison, at the end of February 2022, 39 IFISAs were open to retail investors, targeting average returns of 7.75 per cent.
“The growing opportunities in the IFISA market, with even better returns now, are set against the industry’s long-term, highly stable performance for the majority of investors, in defiance of the ‘high-risk’ labels that the Financial Conduct Authority (FCA) is cautiously enforcing on large numbers of IFISA providers,” said Neil Faulkner of P2P research and ratings firm 4thWay.
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“The industry itself is showing the FCA that investors are interested in alternatives to the stock market that are non-volatile with excellent net returns.
“Thanks to the unprecedented transparency of many of these investment providers, I can see that we should have no doubt that the vast majority of investor cash will continue to perform very well in the coming years.”
Furthermore, historical research by Peer2Peer Finance News has found that actual IFISA returns over the past five years have been extremely consistent, in stark contrast to the volatility of the stock market.
By the end of the calendar year 2021, average IFISA yields were at 7.8 per cent, compared to nine per cent in both 2020 and 2019, and 8.73 per cent in 2018.
Rishi Zaveri, chief executive of education IFISA provider Lendwise, noted that Peer2Peer Finance News’ latest February 2023 figures show a higher return due to P2P platforms’ recent rate rises.
A number of P2P platforms have increased their investor rates in recent months, in order to make themselves more competitive against higher bank savings rates, in an inflationary environment.
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“I think there will be pressure on platforms to provide lenders with a higher return,” Zaveri said. “As long as P2P platforms reflect this in the rates they offer to their lenders, the IFISA market should continue to grow albeit the negative impact will come from how quickly banks and building societies increase their rates.”
The City regulator has imposed stricter marketing rules on “high-risk” investments, making it more challenging to attract new, everyday investors.
Several IFISA providers have raised their minimum investment thresholds over the past year as a result, in order to focus on sophisticated or high-net-worth retail investors instead.
During the 2020/21 tax year, more than £72bn was invested in ISA accounts, but IFISA volumes made up less than £1bn of this total amount, showing the size of the potential opportunity for the market.
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