Capital Bonds Explained

stack of coins representing growth

stack of coins representing growthWhen someone is hoping to make an investment, it is important for them to understand all the detail of the transactions. This includes the level of risk, investment term and any charges or penalties that could be applied.

People can make independent investments, take professional advice from an adviser or use an introducer, like Amyma, to find investments such as capital bonds. They will get differing levels of support in each case and they should check the liability level of anyone that they are involved with so they know who is accountable in case of difficulty.

How does it work?

Capital bonds are where a company raises money by seeking investors. An investor buys a portion of the required amount with a view to getting more than their investment back at a later date or a regular income based on interest.

Most investment plans require a minimum investment of £5,000 or more.

Risk

It is important to realise that bonds are issued and returned and discussed on the basis of expected returns. There is no guarantee of performance and there is always a risk associated with investment. Different types of bonds carry different risks. This is based on factors like the reputation of the company, liquidity and the anticipated length of the investment.

Fixed terms

Most investments involving capital bonds usually involve a minimum five-year investment period. If someone wants to invest for a shorter time than this, they may be better off saving cash. Equally, if someone has more time, they can probably make an even longer investment for different returns. If someone thinks they might need access to their money within a five-year period, then an investment in capital bonds might not be for them.

Charges and penalties

Charges that are applied to investments can be made by a broker or introducer. Often though, their fees are taken into account when the investment figures are being calculated so there is no separate fee to pay.

Some investments in capital bonds will include an early exit penalty. This is to discourage investors from withdrawing. It also protects the long-term financial strategy of the investment company and therefore the interests of their other investors.