Should you invest in a charity retail bond?

23rd March 2016

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The Charities Aid Foundation has launched a retail bond offering returns of 5% per year and maturing in 2026.

It is the third bond to be issued through the Retail Charity Bonds platform, which was created as an issuing vehicle to enable UK charities to raise medium term debt finance through bonds issued to retail and wholesale investors.

The Bonds will be issued by Retail Charity Bonds PLC and the funds raised will be loaned, via a loan agreement, to Charities Aid Foundation (CAF), one of the largest providers of philanthropic services to charities and donors worldwide.

The Bonds are available to wholesale and retail investors and will pay a fixed rate of interest 5% per annum, payable twice yearly on 12 April and 12 October of each year with the first coupon payment being made on 12 October 2016.

The Bonds are expected to mature on 12 April 2026 with a final legal maturity on 12 April 2028.

Investors who want to cash in their bonds before the maturity date can sell them on the open market via a stockbroker, although of course this will be subject to price fluctuations, so they may receive a lower value than the original sum invested.

Canaccord Genuity Ltd is acting as lead manager on the issue.

There is a minimum initial subscription amount of £500 and bonds are available in multiples of £100 thereafter.

The offer period is expected to close at 12 noon on 6 April. The Issuer retains the right to close the offer early.

John Low, chief executive of CAF, says “CAF has a 90 year record supporting civil society by helping people to support charities safely and effectively and helping charities make the most efficient use of their money.

“The funds raised from this Retail Charity Bond will enable us to further our work in a variety of ways, including expanding services for donors and for charities through CAF Bank.”

Justin Modray, founder of Candid Money, says: “Charity bonds are an innovative way for charities to borrow money but as an investor you need to decide whether to approach this with your head or your heart.

“If the charity can’t afford to repay you then you’ll lose your money and won’t be covered by the Financial Services Compensation Scheme.

“And trying to the establish the likelihood of this is well beyond most investors as you’ll need detailed knowledge of the Charities Aid Foundation’s finances.

“On the flip side, if you would have been happy donating the money to charity in any case and view the interest and return of your investment as a bonus then this type of bond might well appeal.

“And for those investors caught somewhere between the two extremes I’d so some homework and try to fully understand the potential risks as clearly as you can before parting with any money.”

 

 

 

 

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