This article is from our new guide The ABCs of ISAs – a Good Guide, which is available to download for free here.
A is for alternative, a word that has a few different meanings. An alternative can mean a secondary option, another possibility or a choice. It can also mean a departure from the norm, something unconventional or even challenging.
We consider the Innovative Finance ISA as an alternative investment in both of these meanings of the word. And at Ethex and Energise Africa, we’re on a mission to help more people understand the benefits of investing in an Innovative Finance ISA (IFISA) as part of a balanced and varied investment portfolio.
The alternative option
While many people are familiar with the concept of Cash ISAs and Stocks and Shares ISAs, it’s not a widely known fact that UK investors actually have five options when it comes to tax-efficient Individual Savings Accounts (although the Junior ISA is for under 18s only).
The lesser-known ISA options for UK investors are Lifetime ISAs and Innovative Finance ISAs. Lifetime ISAs could appeal to 18-40-year-olds looking at buying their first home in the near future, but what about the IFISA? Well, it’s an excellent alternative option for people who want to use all or part of their £20,000 tax-free allowance to fund businesses or organisations directly and maintain control over where their funds are invested.
The challenger option
The IFISA isn’t precisely an unconventional investment option, but they are an alternative to the traditional fund-based investments that people usually associate with stocks and shares ISAs. And this is where the strength of the IFISA lies for diversifying your investment portfolio, especially for investors who are looking to make their finances a bit greener.
In recent months, more investors are becoming aware of the concept of the ‘greenwashing’ of financial products or the fact that the big banks are still investing customers’ money into unethical or ethically dubious industries and companies. But for many, it’s a tricky area to navigate and it’s difficult to tell if a fund or product is as green or ethical as it’s made out to be.
A greener option
When you put your money into an IFISA, such as those offered by Ethex and Energise Africa, you are making a direct investment into an organisation or project, so it’s easy for you to see where your money is going. And as we perform rigorous checks on every organisation we list on the platforms, you can have peace of mind that your investment is actively helping to create a positive impact on people and the planet, all while targeting a tax-free return.
Whether you’re interested in helping support community-owned clean energy generation, funding solar panels for UK schools, building stronger, more resilient communities or supporting sustainable businesses to achieve the SDGs in emerging economies, your ISA money can be more than just an investment, it can be supporting your values and working towards a better future.
Your money, your choice
As with all the investment opportunities offered on Ethex and Energise Africa, those that are eligible to be held within an IFISA are designed to give investors power over where their money is going. We ensure potential investors get access to as much information about the organisations they’re investing in as possible. It’s important that we make the impact and potential risks of investments clear, so there is no doubt about what our investors are funding.
Despite numerous calls by shareholders and customers to clean up their act and stop investing in fossil fuels, the world’s largest banks are still falling far short of what they need to do to support a fair and green future for all. A recent report published by activist group ShareAction found that Europe’s largest banks are not doing enough to address the twin crises of climate change and biodiversity loss.
So, investors who are looking for a more ethical home for their money can look at diversifying their investment portfolio to include some direct investments into organisations or businesses that are actively taking action to create a positive impact.
A balanced and diversified portfolio
While we find a lot of investors invest in the opportunities we offer purely because they strongly support the actions of the organisations or projects they are funding, investing directly via an IFISA can form a part of a truly diverse and balanced portfolio of investments. By nature, these types of investment can be seen as riskier as you are putting your money into one organisation, but the impact that they offer is strong in relation to other ‘green’ fund options and if you are looking to spread your impact and risk it’s a great way to add climate or social impact to your portfolio.
As we approach the tax year end and investors look at ways to make use of their 2022/23 tax-free allowance, we’re encouraging them to look at an IFISA as a way to directly support organisations that are making a positive difference to the world, if you’re looking for inspiration, check out the Ethex and Energise Africa websites to see what current IFISA investment opportunities are available. We’re preparing a few new IFISA projects to launch on Ethex in the lead up to the end of the tax year, so keep checking or sign up for our investment alerts.
Tax status is individual and subject to changes in legislation. ISA eligibility does not guarantee returns or protect you from losses. Don’t invest unless you’re prepared to lose all the money you invest. Take two minutes to learn more on Energise Africa and Ethex.
investing customers’ money into unethical or ethically dubious industries and companies. But for many, it’s a tricky area to navigate and it’s difficult to tell if a fund or product is as green or ethical as it’s made out to be.