Earn 7.75% a year from the Jockey Club
The biggest group in British horseracing launches a retail bond aimed at the general public, but is it right for you?
The Jockey Club has become the first organisation in British sport to issue a retail bond aimed at private investors, companies and investment funds.
Interest of 7.75% a year
The Jockey Club is the largest commercial group in British horseracing. Founded in 1750, it owns famous racecourses such as Aintree, Cheltenham, Epsom Downs and Newmarket. Last year, the Club generated its highest-ever turnover (more than £150 million) and operating profits of nearly £20 million.
However, the Club needs to raise £45 million to build a new grandstand at the flagship Cheltenham Racecourse. To help raise this sum, the Club aims to borrow £15 million from investors via the 'Jockey Club Racecourse Bond'.
This corporate bond is open to adults (aged 18 and over) willing to invest between £2,000 and £100,000 for the minimum term of five years. Investors can invest between these limits in increments of £500.
The bond pays a fixed interest rate of 4.75%, plus a further 3% in ‘Rewards4Racing Points’ that can be redeemed against purchases (such as race cards, tickets, food and drink) at any of the Jockey Club’s 15 UK racecourses.
Applications for the bond have just opened and are due to close on 17th May (or earlier if fully subscribed), so investors have a little over three weeks to apply. To apply, visit www.racecoursebond.com or telephone 020 8639 3399 (open 9am to 5.30pm, Monday to Friday).
Tax treatment
It's worth noting that both the cash interest and Rewards4Racing Points paid by this bond are taxable as unearned income. Hence, the Jockey Club Racecourse Bond Company will deduct tax at the basic rate of 20% from these payments. Non-taxpayers should reclaim this tax from HM Revenue & Customs.
That said, the Rewards4Racing points can be waived to make the bond a straight cash offer, meaning there would be no tax to pay on that 3%.
Alas, these bonds can't be held inside tax-free ISAs, but they can be bought inside SIPPs (Self-Invested Personal Pensions).
Is this bond for you?
Although this bond offers a competitive headline rate of 7.75% interest, only 4.75% of this is paid in cash, with the remaining 3% paid in Rewards4Racing Points. Thus, although it may appeal to the millions of Brits who enjoy a day at the races, it's unlikely to attract those who aren't fans of the 'sport of kings'.
What's more, it's absolutely vital to note that this is not a savings product but is instead a corporate bond. In effect, it's an IOU from the Jockey Club to investors. Thus, corporate bonds should never be confused with deposit accounts, which are far safer and all but risk-free.
By buying this bond, investors are -- in effect -- handing over their spare cash to the Jockey Club for a fixed term of five years. Thus if this 263-year-old institution gets into trouble then the Jockey Club could be forced into suspending interest payments on this bond.
As corporate bonds are not covered by the Financial Service Compensation Scheme (FSCS) -- the Government-backed safety-net for savings -- investors could, in theory, lose 100% of their money invested in this or other corporate bonds. However The Jockey Club argues that the returns are guaranteed by Jockey Club Racecourses Ltd, and are only at risk if the entire company goes bust.
Another problem is that these bonds are not very liquid, which means that they could be difficult to buy and sell in the open market. In addition, you will have to buy and sell these bonds through stockbrokers, which means paying broker charges and lowering your net returns.
In summary, the Jockey Club Racecourse Bond -- and, indeed, all corporate bonds -- are not for amateurs, beginners, widows and orphans. They are really only suitable for experienced investors looking to improve the income generated by their capital. Ideally, you should own this bond only as part of a well-diversified portfolio of shares, fixed-income bonds, property, cash and other assets.
In short, never bet the house on this or any other bond, regardless of the juicy interest rates they pay!
More on savings and bonds:
What doesn't the Financial Services Compensation Scheme cover?
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