We offer a variety of different types of investment on Abundance. The returns you receive back from your investments are split into two elements – your investment income and your capital repayment. The type of investment income and whether you are paid back in instalments or in one lump sum will depend on each particular investment. Find out more about the different types below, but always remember to read all the information about an investment to get the full details on how your payments are structured.
You can get more details on the tax treatment for the investment income from the different types of Debentures in our Help Centre article How are my Cash Returns taxed?
Types of capital repayment
Depending on the investment, your capital will either be repaid in one lump sum at the end of the investment (sometimes called a 'bullet' repayment), or in regular instalments throughout the investment.
Types of return structure
There are four different types of return paid by the investments on Abundance:
The investment income you receive is fixed and known at the outset of the investment.
The amount you are expected to receive for each payment may be constant or rising (some investments pay a fixed but increasing amount) but in both cases will be defined at the outset so you know exactly what you should receive with each return payment. The amount of interest income you are due to receive is not directly linked to the performance of the underlying project, but remember that your return is not guaranteed and if the company or council runs into difficulties they may not be able to pay your scheduled return.
The investment income you receive is directly linked to how the project or company performs in each particular period.
The Offer Document and Factsheet provide details of the estimated returns, which are based on a number of assumptions such as: the annual energy production, the price received for the electricity generated, and other costs. This means returns can vary from period to period based on the energy generated as well as other things like costs.
The investment income you receive is directly linked to inflation each year. The Offer Document and Factsheet give details of how the inflation link is calculated for each individual investment.
Similar to a fixed return investment, the interest income you receive is not directly linked to the performance of the underlying project but is linked to the rate of inflation.
The investment income you receive is linked to whether a certain event or events, happen in a certain period of time. An example might be that you receive an additional return if the project receives planning permission or meets certain development requirements to go ahead. The Offer Document and Factsheet give more detail on the trigger event(s) that impact your return.
How is the return shown?
Depending on the structure of your investment income and capital repayments, the return on the investment will be either shown as a simple annual percentage return (for example '8% per year') or as an Internal Rate of Return (for example, 8% IRR).
An IRR can be used to describe your return for any of the investments on Abundance, but we typically show it for investments that repay your capital in instalments (rather than in one lump sum at the end) and when you’re purchasing investments on the marketplace.
In the case of an investment that repays your capital in one lump sum at maturity, we show the return as an annual interest rate for simplicity. For example, for an investment of £1,000 that pays £80 interest annually with capital repaid at maturity, this is shown as an 8% a year return. However, this investment would also be 8% IRR – there is no difference in this case.
For an investment that repays your capital in regular instalments but pays a fixed amount of annual interest, it is not possible to represent the return as a simple interest rate (as it would change each year), instead this is shown as an IRR.
If you are looking at purchasing an investment on the marketplace, you will also see the effective rate of return shown as an IRR. This is shown as an IRR as it takes into account the amount you would need to pay for the investment based on the price set by the seller.
You can learn more about an Internal Rate of Return in this article here.