Some people (probably marketing the structured product) argued that 5% is a high return that justify a high risk. A safe return is 1% or less, which is the interest paid on fixed deposit. I disagree with this reasoning.
In my view, these investors are not risk takers. My reasons are:
1. Government bonds pay a return of about 3% per annum over a period of 5 years. It is guaranteed by the Government.
2. The 5% that is provided in the structured product is not guaranteed. It is actually paid out of the principal. Even if economic conditions are favourable, the investor may not get 100% of the principal paid on maturity. Even if the structured product is "principal protected", it is not the same as "capital protected".
3. It is irresponsible for the financial institution to earn a higher yield by risking the capital in credit default swaps. This is a gamble and is highly risky. This risk has not been properly explained to the investor. In most cases, the investor has been misled by improper advice and assurances.
There are strong grounds for the authority (MAS or attorney general) to investigate the financial institutions for wrong doings. I hope that the authority will act immediately. The purpose of the Petition to the Singapore Government is to ask for an investigation to be made to determine if any law has been broken.
Yes investing in a structured product does not make sense when compared to SGS bonds.
ReplyDeletethe reason why RMs don't sell SGS is because the commission is only less than 0.5% compared to the 5% (or higher) sales commission they get from selling structured products.
If an RM were to rely on selling SGS, they'll never meet their sales targets.