Film investment is the best form of structured investment. You will always get something in return.
Just like in any structured product, investing in film production will tie up your money for a set period of time. In the case of film investment, it is repaid after the film has been completed and showed to the public.
What is a Structured Investment?
Structured investment is usually offered by banks and insurance companies. The investor usually purchases two underlying investments, one to protect the initial capital and the other to provide the bonus.
When it comes to film investment, the return depends on how the film performs. In addition, if the film performs badly, the investment made by the investor will be repaid first before paying off debts and other obligations. As you can see, the film investment is a type of structured investment that never fails.
Is There a Risk in Film Investment?
While the film industry does produce a lot of flops, there are movies that do well in the box office that can generate good income for investors. A film investment also lacks liquidity. It is not recommended to put majority of your portfolio into it.
The good news is that investors have a lot to gain from their film investments. And to ensure that the structured investment does not fail, one should do some due diligence first. Investors should be confident about the risks involved is to make sure that some of the revenues of the movie are already locked in before the investment is made.
Investors should find films that mitigate risks through pre-sales. It involves contracts with distributors while the film is still in the development stage. Most pre-sale contracts are based on the cast and script. The buying and selling of rights are made during major film festivals. As part of the agreements, a loan is taken out against the pre-sale deal to help fund the production of the film.
Another way to ensure that the film investment involves little to no risks is to look for strong cast and genre. Film investors should also spread their risks by backing several films instead of betting a large portion of their portfolio into a single film that might flop.
In recouping one’s film investment, tax has a major role in it. Structured investments often offer 30 percent upfront income tax relief if the film investment will be held for at least three years. That means for every pound you invest in a film, you will get 30p via tax relief.
Investors also indirectly benefit from the tax credit of the film production. In the UK, filmmakers are provided 20 percent of the cost as rebate from the government. The amount of rebate does vary across the globe.
As you can see, film investors do face risks. But in the long run, film investment is a structured investment that never fails. Investors just need to understand how the industry works, and find the right projects to invest in.