IFISAs offer steady returns amid stock market turmoil
With stock markets in turmoil as the new ISA season begins, proponents of Innovative Finance ISAs (IFISAs) say they offer retail investors a glimmer of stability – a fixed return and regular, reliable income on which to structure their finances.
Even before the recent stock market volatility amid global trade wars, IFISAs, which are the tax wrapper around peer-to-peer investments, were gaining in popularity.
The value of investment into IFISAs rose by 46 per cent in 2023, according to the latest figures from HMRC, from £563m to £821m, as awareness of the investment product continues to increase.
Read more: Chancellor urged not to overlook IFISA in tax wrapper reforms
With the S&P 500 down five per cent in the year-to-date, and down eight per cent in just the past month, investors looking to diversify away from public markets and earn regular, fixed returns could consider an IFISA.
Roy Warren, managing director of Folk2Folk, a P2P lender with its own IFISA investing in UK SMEs, backed by UK land and property, explains: “With Folk2Folk because it’s debt rather than equity-based investing, you are getting your income. One of the primary benefits is investors get a fixed return. So, to a degree, they’re getting a predictable return.
“Also we pay interest monthly, of at least 8.75 per cent per annum, so they’re getting a monthly income,” he adds. “Investing through the stock market, in a stocks and shares ISA, for example, you’ve got the turbulence, you don’t really know what you’re going to get back.”
Read more: How to invest in an IFISA in 2025
Likewise, stock dividends might be paid annually, perhaps biannually and very occasionally quarterly. “Whereas within our IFISA, you get your monthly income and it’s at a fixed rate, so it’s not linked to market performance,” he says, “and with the capital repayment at the end.”
IFISAs can offer higher potential for returns compared to cash ISAs too, as a reflection of the higher risk. For example, CapitalRise’s IFISA provided returns of 9.26 per cent last year.
Diversification is definitely an advantage, says Uma Rajah, CapitalRise’s chief executive. “IFISAs enable investors to diversify their portfolio by providing access to alternative asset classes, which can help mitigate risks associated with market volatility, by spreading risk across multiple borrowers and sectors,” she explains.
For instance, CapitalRise’s IFISA allows retail investors to fund prime property developments. “Prime real estate-backed investments were previously only available to individuals and institutions with millions to invest,” says Rajah.
Read more: Folk2Folk IFISA to remain P2P focused
With CapitalRise, these opportunities are accessible to all eligible investors from £1,000.
While IFISAs can offer many benefits, it is important to remember they also come with risks, such as the potential for borrower default and liquidity constraints, Rajah points out. “As with any investment, it is crucial to do thorough research and consider your risk tolerance before investing,” she says.
Look out for our special report on IFISAs in the April issue of Alternative Credit Investor magazine.
