Making the most of your investment: Understanding your returns

One of the things people have told us they like about investing through Funding Circle is that it complements their other investments and offers attractive returns and less volatility than some other investment products, such as shares.

While shares can deliver attractive returns, they are volatile and won’t necessarily rise steadily over time. Facebook’s IPO and Google accidentally publishing its results early last week, which led to a 20% fall in its share price, are good examples. Funding Circle is different in that its return profile fluctuates less than shares.

FTSE 100 performance in the last 12 months


Illustrative Funding Circle performance over 12 months


As you can see from the graph above, the shape of your returns at Funding Circle will fall when you experience bad debts and increase again as other businesses pay you interest.

It’s important to remember that Funding Circle is not a savings account: it is a stable, risk-based investment. As an investor you should expect that some of the businesses you lend to will be unable to fully repay their loans – at Funding Circle we call this bad debt. Our current level can be found on our statistics page.

On the statistics page, we also provide estimated annualised bad debt levels so you can use these to calculate your expected net return. We estimate that you should expect a bad debt of 2.0% of your investment annually, although this will vary by the risk bands you lend to. These figures can help you calculate your estimated net return. In line with other risk-based investments, such as such as corporate bonds or gilts, we quote your rate as an average gross yield. The average gross yield is the return that you receive on your investment if you immediately reinvest all the monthly repayments (both interest and principal) you receive over the course of a year. This is before bad debt, our 1% annual fee and tax.

You can calculate your overall net return (before tax) by using this formula:


Unlike other peer-to-peer lending sites, where individuals lend to other individuals, relief from Capital Gains Tax is also available on loans which become irrecoverable at Funding Circle because you are lending to businesses. This is known as ’loss relief’ and even if you experience a bad debt, but do not use loss relief in the year it is incurred, it can be used in the future. You can read more information on our FAQshere.

If you do experience a bad debt, we will try to recover as much of your money as possible. We take security on more than 90% of all loans to ensure in the eventuality of a business not being able to fully repay their loan we have opportunities to recover the money. This includes personal guarantees, assets (such as coaches) and all-asset security (everything a business owns). Each recovery process will take a different amount of time to complete depending on each specific case. Whenever you experience a loss, we will communicate this to you and keep you updated on the recovery process within your account summary. You can read more information on our debt recovery processes here.

Next week, in our third post of the series, we’ll look at diversifying your investment.

The Funding Circle team

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Jack Pritchett

Senior Communications Manager