The Vitamin account is a structured product. An investor invested $40,000 in October 2005. On the maturity date in October 2011 (5 years), the investor will receive the full principal plus the performance of the underlying references (which amounts to NIL). During the 5 years, the investor obtained a total payout of 4.1099% or about 0.8% per year. This is a poor yield for an investment that is locked up for 5 years. It is a structured equity-linked product.
Many investors had invested in structured products, such as the Vitamin account, for 5 years and received a paltry return. It is advisable for investors to avoid all types of structured products, including the capital guaranteed, capital protected, equity-linked, currency-linked or credit-linked products. The experience of nearly all the products issued by the banks over the past ten years had been disappointing.
:-) Should be called Heroin Account instead -- get a high in the first 6-12 months, then suffer withdrawal pain for next few years. The equity derivatives for this product got "knocked out" during the 2008 market crash. Now it's only the fixed income portion sustaining the money and the 0.8% yield. But the bank and intermediaries already got their upfront 5% to 10% fees.
ReplyDeleteEven a good money market fund provides better returns, and you can simply put in today and request for withdrawal tomorrow -- no lock in and no penalty.
At least the consolation for that investor is that this is an equity-linked product. If it was credit-linked, it may even be wiped out like the high notes, or at least will suffer significant capital loss.
In seeking a higher yield from the paltry interests the banks are paying, we are forced to take on these products that promises but never deliver. I bought the Prosperity 8 from DBS some 5 years ago, on the basis of it being guaranteed, and an attractive upfront interest payment. After that it was zero payments for the next 4 years. Luckily its maturing next year.
ReplyDeletethe bottom line is that further interest payments from the initial bonus is linked to a formula that you can never win ! And then there is an redemption clause for DBS to exit, only when they want to win it all. Such is the state of alternative investments available in our financial hub.
Its only now they introduce retail size bonds. And we get 2 to 3 pct and its suppose to make us glad. I have real concerns about retiring with grace.
ha.. Mini bond incident forgotten!
ReplyDeleteNo, still very fresh.
ReplyDeleteFive years ago, DBS sold a product Honey Account. Upfront it paid a rather high payout, the second year a very, very, very, very much smaller amount, then the payout stopped. When it matures on the sixth year, depositors expect nothing by the look at things.
ReplyDeleteOut of a six year investment, we got a very disappinting deal.
True to avoid all structured products, we get wool pulled over our eyes, protected or principal guaranteed or not, they are all the same, bankers are all out to hoodwink us, giving us a thousand reasons why payment stopped.
DBS's products normally bet against customers. That means if you make money, DBS will terminate the product early. If you loss, DBS will let the product proceed until maturity. That is how I understand it by talking to their RMs.
ReplyDeleteSame go to DBS Honey Account
ReplyDeleteA few years ago, a bank RM recommended me a product called "Upswing", which is a capital guaranteed structured product i.e. a full repayment of principal at the end of 5 years plus interest. The interest portion is based on certain economic variables which is difficult to achieve. I put some money into this product for a period of 5 years. Seeing the miserable interest yield, I cash out after 3 years, losing a portion of the principal. So instead of an expected upswing, I got a "downswing".
ReplyDelete