Over the past five years or so a whole host of companies have appealed directly to income hungry savers in the form of retail bonds.
These bonds are targeted at small investors and can be purchased from as little as £500, whereas the far larger corporate bond market is dominated by institutions and come with much higher minimum investment levels.
The latest firm looking to tap members of the public for cash is Greensleeves Care, which is offering 4.25 per cent interest for a bond that matures in 2026. Greensleeves is a charity that provides care and accommodation for the elderly, primarily through residential, dementia and nursing care services.
The charity, which supports up to 789 residents across 20 dementia and nursing homes located across England, will use the money raised from the bond to expand its services.
QUESTION OF RISK VERSUS REWARD
Interest will be paid twice a year, with the first payments being 30 September 2017 and 30 March 2018. The bond offer is expected to close on 24 March, and the minimum investment amount is £500, falling to £100 for subsequent contributions.
The bonds are tradeable through various stockbrokers, including our sister company Interactive Investor.
It is the fourth bond to be issued through the Retail Charity Bonds platform, which was created to enable UK charities to raise debt finance through bonds issued to retail investors.
Investing in bonds requires just as much scrutiny of company balance sheets as investing in shares. Three things to examine are cash flow, debts and profits.
Those who put money into any retail bond are essentially taking a view on whether the issuer will grow as hoped, in order to pay the interest payments. If the issuer fails, investors face the prospect of losing all their capital.
One thing to look out for is whether investor protection measures are in place, such as a claim over the assets the bond invests in. For this particular retail bond there are no such measures in place.
Bear in mind that neither retail nor mini-bonds are covered by the Financial Services Compensation Scheme. Mini-bonds differ from retail bonds. They cannot be traded, so therefore must be held to maturity.