Wednesday, July 22, 2009

Minibond - misconceptions and unfair criticisms

Dear Mr. Tan,
I would like to respond to the following misconceptions and unfair criticisms:

1) The fixed deposit is about 1.5% in 2007 and you get 5% from minibond. You should have known better. So high differential. Still claims risk?

It is not fair to use 12 months fixed deposit rate because minibond is for 5 years. There are many low risk products offer 4% to 6% returns from the market. E.g. DBS6%NCPS, UOB5.05%NCPS, OCBC5.1%NCPS, OCBC4.2%NCPS…. If we compare the minibond with the OCBC 4.2% and 4.5% preference shares available from the stock market, which we can sell the shares anytime if we need cash, the 5% offered by minibond is not attractive because we can’t touch the money for 5 years.

2) High return high risk, since you get 5%, the risk should be high.

Many financial experts agreed that the reasonable return from long term investments (5 to 10 years) should be around 4% to 6%. A 5% return from minibond should not be considered as high as it is a long term (5 years) investment. All high risk investments are on short term basis, who would want to invest into a long term high risk product?

3) Who ask them to invest blindly on a product which they don’t understand?

Misled by the newspaper advertisements and sales brochures, many investors thought they were buying a five-year bond issued by the six leading banks. It turned out that it is a very complex product which even the sales people from the financial institutions are unable to explain clearly.

4) As a responsible investor, you should have read the prospectus before making the investment.

The minibond prospectus summary is as misleading as the sales brochures. The other parts of the prospectus give plenty of information on the credit ratings of the six leading banks which reinforce the believing that it is a bond issued by the banks.

It is also not realistic to expect an ordinary investor to understand fully the entire prospectus before making an investment. For example, of the tens of thousands of OCBC preferences shares investors, how many of them really read and understand fully the entire prospectus of the preference shares before making the investment?

5) Who would expect Lehman brothers to go bankrupt? (i.e. the risk is low at the time of selling) It is unfortunate that Lehman did fail. You have to accept it and move on.

Minibond is not a bond issued by Lehman or by the six banks. It is a high risk long term complex structure product. Who would dare to invest in a high risk product for 5 years?



Anonymous said...

yeap, fell for the same trick but the government asks us to deal directly with the FIs that choose not to believe you. It means goes to court but I have no money so I have to swallow my loss.

Anonymous said...

Me too, bite the bullet, move on and learn to deal with FIs with extra care.

Anonymous said...

when you get hit by a bus, the governemnt would ask you "go complain to the bus driver, don't complain to me." when the bus driver lies and says "I did not hit you, go away," you complian to the government again, which says "if he says that he did not hit you, he must be right and you must be wrong."

this is how silly the situation in singapore is.

we have not one to turn to, god help us.

Anonymous said...

when the government finally investigates the hit and run, it finds that indeed the driver did hit you, so the governemnt says to the drive, "you naughty boy, you hit the man but refuse to admit, I will have to punish you." The punishment is "you cannot hit him again for six months!"

Anonymous said...

You complained you were badly injured and have yet to receive any compensation from the bus company for your medical fee. The government say: "I've already issued an unprecedent punishment of not allowing the driver to hit you for 6 months, what else you want? Also his reputation is tarnished"

Anonymous said...

The bus driver joined another bus company as its chief driving instructor and look forward to more good years ahead

Anonymous said...

Great work and recommendation by MAS and the govt to protect the small people so far hit by the MAS appoved toxic products... minibonds, pinnacle notes... We all should trust the govt more with such great experience and should continue to vote for them come the next election????? God Bless

Anonymous said...

pay ministers $millions and they deliver peanuts. Looks like we sgp MB investors paid a high price to learn our system sucks....

A Tan said...


True 12 mth FD rate is bad benchmark.

So use the yield of 5 yr govmin bonds (2.33% pa in 2007), this shows minibond interest rate of 4.88% is 209% more than the yield on 5 yr govmin paper. That of DBSHN5 is 215%.

The 200% difference should have alerted investors.

I'm sure that investors will claim that 5 yr bond yield benchmark is unfair because they didn't know abt it.

I can only respond by using longest FD rate available at time which I've been told is 2.8% for 3
yrs (HLF).

And to tell them to join FiSCA Chairman one Tan Kin Lian to educate consumers.

Anonymous said...

So all the injured pedestrian can do is to tell younger generations to AVOID CROSSING ANY ROADS TOTALLY AND STAY AT HOME ALL THEIR LIVES...good luck for the bus companies...

Anonymous said...

Hi A Tan,

There are many investment options available for a retail investor:
1)Fixed deposit: return is around 1.5%. (return of 1 risk of 1)
2)5 years Government bonds: return is around 2.33%.(return of 1 risk of 1)
3)Local banks preference shares: return is around 4% to 6%. (return of 3 risk of 3)
4)Unit trusts: long term returns is around 5%. (return of 3 risk of 3)
5)Blue chips share: long term returns is around 6% to 10%. (return of 4 risk of 4)
6)Trading of shares: the return could be more than 10% within weeks, this translates to yearly return of more than 100%. (return of 8 risk of 8)
7)Trading of speculative shares: the return could be more than 10% within days, this translates to yearly return of few hundred percents. (return of 9 risk of 9)
Therefore, a long return of 5% (215% of government bonds) offered by minibond, can not be considered as high and it should not causes any alarm to the investors.


Blog Archive