DBS

37 “Exchanges can help to supplement the information gap on SMEs by either directly providing research and company information, or connecting investors to such sources of data through an online platform.” – Oliver Wyman ASSET UNLISTED, SELF- PROMOTED DBS UNLISTED CROWDFUNDED DBS (LISTED ON A REGULATED PLATFORM AND ELIGIBLE FOR IFISA) RETAIL BONDS CASH DEPOSITS BOND FUNDS UNLISTED EQUITY (INCLUDING EIS) P2P LENDING TERM 3-30 years 3-30 years Around 7 years Varies – current accounts are instant access but higher rated require 3-5 years >5 years is recommended >5 years is recommended 1-5 years TAX WRAPPERS SIPPs and SASS wrappers unlikely to accept. Not eligible for IFISA Much more likely with this category of unlisted bond. Some SIPPs accept and eligible for IFISA ISA, SIPP, however subject to current subscription limits ISA, SIPP ISA, SIPP EIS has generous tax breaks, and some SIPPs and SASS wrappers may accept unlisted equity. Also may be held in stocks and shares ISA Eligible for IFISA. Some SIPPs LIQUIDITY Low to high depending on bond structure & size of the issuer Dependent on secondary markets High – listed on ORB High Depends on fund structure. Can be daily or monthly Low Medium: loans can be sold on the platform RETURN (P.A.) 5-15% and can be boosted by term bonus payment and payment in kind 6-7% average, but can be 15%+ Relatively high, however varies Low, circa 1-2.5% depending on the term Depends on the level of risks circa 3-7% Varies from total loss of capital to 10x capital and greater 3-10%, depending on the level of risk COSTS Low, but may not be transparent Low, but may not be transparent Less than £1 per deal plus brokers may charge additional fees Free High, as much as 5% on entry with 1-4% ongoing High, usually 2% initial and 1-2% ongoing for an EIS fund (but also higher fees are usually paid by investee companies) Low, <2% RISKS Medium-High. Principal is at risk, but does not fluctuate with the stock market. Can be very high as regulation may not be required Lower risk thanks to the extra protections required by IFISA. Any asset backing reduces risks further Higher as it exposes the investment to stock market- like conditions, and as it is not covered by FSCS Very Low, and first £85,000 of deposits in UK institutions are covered by FSCS Varies depending on the credit worthiness of the companies being invested in Making single company investments is high risk, funds offer diversification Medium-High. Making single company investments is high risk, funds offer diversification STANDARD INVESTMENT? No No Yes Yes Yes No No SUMMARY AND COMPARISON OF RISKS AND RETURNS is worrying for savers, it could actually be beneficial to DBS investors; saving rates suggest that savers will find it extremely difficult to find a traditional savings account that will match, let alone beat, the predicted 2017 inflation rate of 2.7% 75 . Savers could find they are losing money in real terms, as money deposited in a traditional high street bank will be worth less in real terms after a year. Yet, the higher yields available in crowdfunded bonds, debentures and loan notes could still easily beat inflation and offset its corrosive effects on capital. EARLY CALL RISK If the issuer has the right to repay the investment at any time prior to the formal repayment date, a crowdfunded DBS holder’s investment may be materially curtailed. This might happen following a decrease in interest rates that makes the coupon rate relatively more onerous for the company (but less convenient for the investor as the interest payments (i.e. income) finish when capital is repaid) 76 . In the event of early repayment, the company will pay back the principal and possibly an additional premium, which depends on when the call occurs in relation to the actual maturity date.