ROI Sharesave Sceme

alexkerr

I would like to know if I am correct in thinking the following for my work Sharesave Scheme

We choose an amount we want to save every month over a 3year period. After that period we use that pot to buy shares at a reduced price. This is set at the start of the 3year period and is around 20pc blew actual price

So say I save 20 a month for 3 years which buys me 32 shares. I then sell all the shares at the current price which is say 45. What is my ROI per year?

Is simply a third of the usual calc for ROI? I read about compounding but this isn't compounding as I only benefit after 3 years?

Am I correct in saying it is around 33pc?

32x45=1440
1440-720=720
720/720 x 100 = 100
100/3 years = 33.33

redbuzzard

Well, I suppose if your ROI is £720 on an investment of £720 then it's 100%, or 33% p.a. as it takes 3 years. But a simple ROI isn't a very useful comparator for this.

The equivalent savings return would be 50.6% p.a., assuming you got the share proceeds one month after you made the last payment.

The easiest way to work it out is to use a financial calculator or a spreadsheet. Do you use Excel?

EDIT: Realistically, it might be 3 months after the last payment before you get the share proceeds, which would make the "savings rate" 45.5% p.a.. Still not bad!

alexkerr

redbuzzard wrote: »

Well, I suppose if your ROI is £720 on an investment of £720 then it's 100%, or 33% p.a. as it takes 3 years. But a simple ROI isn't a very useful comparator for this.

The equivalent savings return would be 50.6% p.a., assuming you got the share proceeds one month after you made the last payment.

The easiest way to work it out is to use a financial calculator or a spreadsheet. Do you use Excel?

EDIT: Realistically, it might be 3 months after the last payment before you get the share proceeds, which would make the "savings rate" 45.5% p.a.. Still not bad!

Thanks for that, although I am slightly confused at how you worked out the equivalent for a savings account. Receive the proceeds around 2 months after last payment.

I am fairly good with excel

redbuzzard

alexkerr wrote: »

Thanks for that, although I am slightly confused at how you worked out the equivalent for a savings account. Receive the proceeds around 2 months after last payment.

I am fairly good with excel

OK. Just list your cash flows in a column, like this...

20
20
.
.
20
20 (36 of these)
0 (this is the month when nothing happens)
-1440 (or whatever figure you choose for the proceeds)

If you put that list in A1 to A38, then ...

in cell B1, type the formula =IRR(A1 : A38, 0.02)
(no spaces - I had to put them in here to stop it displaying a smiley-type thing)

and in C1, type the formula =(1+B1)^12-1

Format B1 and C1 as %.

B1 should now display as 3.3%, which is the monthly rate of implied interest, and C1 as 47.9% which is the effective annual rate of interest, comparable with savings account AER.

Note that these are for monthly cash flows (hence one of them is zero to get the timing of the subsequent ones correct). If you want to extend the time period, just make the list longer but make sure the formula in B1 covers the range to the end of the list.

Hope that makes sense.

Yorkie1

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