The Funding Circle SME Income Fund
Last week we gave an update on the upcoming Funding Circle ISA, and explained that it is possible for investors to earn tax-free returns by investing in the Funding Circle SME Income Fund. In this piece we will look at the Funding Circle SME Income Fund in more detail, and how investors could consider including it as part of their diversified investment portfolio.
Before we go on, it is important to highlight that the Fund operates differently to investing directly on the marketplace, and any investors interested in investing in the Funding Circle SME Income Fund should first speak to a financial advisor.
What is the Funding Circle SME Income Fund?
The Funding Circle SME Income Fund is listed on the London Stock Exchange. Last November it raised £150 million from a range of investors – including asset managers, wealth managers and pension funds. Shares in the Funding Circle SME Income Fund may also be purchased by individual retail investors in the UK.
How does it work?
The Funding Circle SME Income Fund provides access to a diversified portfolio of loans originated through Funding Circle’s global geographies in the UK, USA, Germany, Spain and the Netherlands.
Rather than lending directly to businesses on the Funding Circle platform, investors purchase shares in the Fund itself, receiving income in the form of quarterly dividends. The annual target dividend yield is 6-7 pence per share once fully invested. Your actual return may be higher or lower since, like any investment in shares, your capital is at risk.
The Funding Circle SME Income Fund buys up to 35% of loans originated through the Funding Circle marketplace. Like other larger investors, it only buys whole loans and does not compete directly with individual investors, who purchase partial loans. The allocation between whole loans and partial loans remains completely random.
Including the Funding Circle SME Income Fund within your investment portfolio
For many investors, peer-to-peer lending will make up part of a diversified portfolio, with investments often spread across multiple asset classes such as equities, cash, stocks and fixed income products.
The Funding Circle SME Income Fund is an equity investment, so investors’ total return is made up of dividends received, plus appreciation (if any) in the share price of the Fund. Share prices can be subject to volatility over the short term, so the Fund can be considered a longer term investment. For individual investors, this could form part of a Self Invested Personal Pension, (SIPP). A SIPP works like a personal pension, however investors have full control and make investment decisions on their own behalf. All earnings from investments held within a SIPP are tax-free. Investors can also include their investments in the Fund within a Stocks and Shares ISA.
How can I buy shares in the Funding Circle SME Income Fund?
The Funding Circle SME Income Fund operates as an independent company and investors are unable to buy shares directly from Funding Circle. Investors interested in purchasing shares may want to consider speaking with their financial advisor. For further information on the Funding Circle SME Income Fund, please visit its website: www.fcincomefund.com
We hope this post has been helpful. Over the next few weeks we will be discussing the benefits of tax free investing in more detail.
If you have any questions, please feel free to join the conversation on the forum.
The Funding Circle Team
*This blog post is provided for information purposes only and is not intended to be construed as an offer, invitation or inducement to engage in investment activity in relation to – or a financial promotion of – Funding Circle SME Income Fund. Funding Circle does not give investment advice or recommendations and this blog post should not be relied upon as such*