Tuesday, November 06, 2012

Structured investments


Dear Mr. Tan
My friend Alice recently attended a property fair at Marina Bay Sands. She was approached to join Company A which do structured investments for clients with guaranteed capital gain of 115% annually, i.e. if you put in $100,000, you will get $115,000 annually.  Alice was surprised and was informed that the money collected is used to purchase properties in USA to generate the yields.  Her question was whether such form of investments are legal and are endorsed by the regulator? What is your 'feel' of such products, Mr Tan?   


REPLY
This product is not regulated. You give $100,000 to a company who gives you a piece of paper and do what they like with your money. If the company does not pay back your investment, what can you do? Never trust this type of unregulated investments.

7 comments:

Soodo said...

Dear fellow Sinkies.
What exactly does a regulated investment product mean anyway?

Does it mean you are guaranteed to make money?
Does it mean the government will help you get your money back if the investment fails or the company goes bankrupt?

Personally, I really don't know what a "regulated" investment product means. So please enlighten mean if you know.

Sincerely Yours
A Cynical Inquiring Mind.

PS:
The safe return OF your capital is more important than the return ON your capital.

Kin Lian Tan said...

If the product is regulated, the issuer will be required to keep funds to meet their obligations, just like a bank or finance company. If the funds are taken out of the company, it will be illegal and the people in charge can be sent to jail.

Soodo said...

Dear Mr Tan
Thank you very much for your kind clarification. I apologize in advance for further belabouring the point about "regulated" investment products. The cases highlighted here in your blog just want to make me cry in shame and disgust.

So then were the infamous mini-bonds that were sold in Singapore, "regulated" financial products?

I just want to ascertain how safe are these so called "regulated" financial products.

Separately, I'd guess endowment policies sold by insurance companies are "regulated" financial products. In that sense, I guess your capital is safe. But the returns are pretty bad.

Thank you in advance.

sam said...

Please name the company and the structure investments offered. We consumers will form our informed opinion about the company involved.

Solomon said...

I think MAS can start to investigate this company now. They do not have to wait until investors start to complain.

This investment would not show up at Sinagpore if there is 15% guaranteed return, Donald Trump or Warren Buffet would swallow up this company first.

Kin Lian Tan said...

Soodo,
Some regulated products give a poor return, but at least they are regulated and the money will not disappear entirely.
In the case of the credit linked notes, although they are "regulated", the regulator asked the distributor to disclose a "risk statement" that you may lose all of your capital under certain events.
I think that this type of regulation is not satisfactory, but it is better than the unregulated products.

Kin Lian Tan said...

In my view, the best long term investment for most people is an indexed fund of blue chip shares, such as the STI ETF sold in SGX.
Those who are interested can attend the FISCA talk on financial planning and investment to learn about it.
www.fisca.sg (Events).

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