The marketplace on Abundance lets you purchase investments from other investors who are looking to sell. A seller will list an amount of a particular investment that they are looking to sell and they have the option to set a reserve price if there is minimum price they are willing to sell for.
Interested buyers can then place bids against the offer based on the price they are willing to purchase the investment for. It is up to you choose the price you are willing to pay but this article provides some things to consider when choosing a price.
Part or all of your original invested capital may be at risk and any return on your investment depends on the ability of the company or local authority that issued the investment to pay your returns. Past performance is not a guide to future performance.
Learn more about the investment
Before you consider the price you are willing to pay, have a good read through all the information provided about the investment and consider whether the investment is right for you. The investments on Abundance vary in a number of ways, including whether the investment was issued by a company or local authority, term length, return and the risks involved.
The amount you are expected to get back and when might affect how much you are willing to pay for an investment. For investments for sale on the marketplace that have a fixed return, you can view a payment schedule. This sets out a list of all the expected payments from the investment, as well as the payments successfully made to date.
For investments that have a variable or inflation-linked return, future returns depend on the performance of the project or the rate of inflation respectively and therefore future payments are not known. The payment schedule will still show you what these investments have paid out historically.
Bear in mind that an investment may be approaching a payment date and the return is paid to the holder of the investment on the date of payment. Therefore, if you purchase an investment shortly before the company makes a payment, you will receive the entire return accrued since the last payment. For some investments, the interest is rolled up over the full term of the investment and only paid in one lump sum at the end, so the price might reflect the interest accrued since the start of the investment.
Remember that the returns are not guaranteed and past performance is not a guide to future performance.
An Internal Rate of Return (IRR) is a way of showing your return over the life of the investment and is particularly useful when showing a return for an investment that has irregular payments and payment periods or when considering the price to pay for an investment. You can learn more about an IRR here.
You can use the IRR calculator to see what your return will be based on the price you are considering paying for an investment. The calculator is available for an investment for sale on the marketplace, except for investments that have a variable or inflation-linked return.
Please note, the maximum price you can enter is the total expected returns from the investment, any more than this and you would make a loss and your IRR would be negative.
It is important to consider all the information available on a particular investment, including any updates or events that have happened since the investment was originally offered. This includes information like the payments successfully made by the company or local authority, any updates that have been provided, and the annual accounts.
The types of update provided will depend on whether the investment is from a company or local authority, the use of the money raised, and the nature of the business. The updates may provide important information on how the company or local authority is performing which in turn may impact the risks of the investment. For example, an operational renewable energy project may provide an update notifying investors of an operational issue. Or a company constructing a new project may notify investors that they have reached a key milestone on budget.
The market interest rate
The interest rates in the wider market may go up and down over time. This may affect the price an investor would be willing to pay for an investment if better rates for products with similar features and risk profile are available elsewhere.
If the interest rate for other similar investments increases, you may want to pay less for the investment to ensure you receive an effective rate of return on your investment which matches the current market rate. Conversely, if interest rates fall you may want to pay more for an investment that has a higher rate than you can get elsewhere.
The longer the outstanding term period on the investment, the greater the impact a change of interest rate may have on the value of that investment. To learn more about the effect of a change in market interest rates, click here.