I posted my views on a structured product that offers 4.9% return over 7 years. I received this comment:
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This post seems to be selectively misleading. To my limited awareness, the assets backing the product concerned is rated by S&P. Have also done a quick surf of Income's website. It is revealed that Income is rated AA by S&P which is the same rating as the plan.
Since you have highlighted that it is a "scary" product due to the risk, will I be correct to say that it actually shares similar level of risk as Income?
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Here is my reply:
It is very rare for an insurance company to fail. If it gets into financial difficulty, another insurance company will take over the liability. The policyholder will be protected to a large extend.
Anyway, NTUC Income is rated AA by Standard & Poors. This is the highly rating among all insurance companies in Asia. It is very safe to invest your money with NTUC Income.
In the case of the structured product (not offered by NTUC Income), the investor will lose 100% of the invested capital if there are 21 failures among the 121 investments.
Although the likelihood of 21 failures is small, it is still "scary", especially if the investor has not be made aware about this risk.
I advise the investors to clarify with the insurance company. You can decide after getting the explanation.
The person who give his name as "Truth Seeker" is clearly an agent selling this structured product.
ReplyDeleteI will leave your comments for people to make their own judgement.
My advise to them is, "Check with the insurance company. Get more facts about the risk. If you are comfortable with the risk, then it is okay".
In a economic depression, the likelihood of 21 investments (mainly of which are of low grade, near "junk bond" status") may increase. Otherwise, the risk is likely to be small.
But, are you prepared to take this risk just to earn 4.9%? I would not.
My advise is to invest in an equity fund. You can get a better return and, in my view, lower risk.