Thursday, January 04, 2007

Should I get out of these structured products?

Dear Mr Tan,

Two years ago, I put my SRS savings into 2 principle protected 6-years structured deposit with X Bank.

The value has dropped since day 1, despite of the strong equity market in the last two years.

I chose the structured deposit to get a better return than bank interest and to avoid the risk of investing in unit trusts.

Looking back I realised that this was a mistake. I would have got a better return if I had invested in the NTUC Income's Combined Fund, for example.

I am thinking of redeeming the structured deposit now. I will lose between 9% to 12% after taking into account the guaranteed payout received during the first year. Is this a wise move?


Dear WF

Can you give me some details about the structured deposit. What is it invested in? What are the charges?

I suggest that you write to Bank X and ask them to give you an explanation in writing about its poor performance to date. They owe it to you.

You can check this website, www.askdrmoney, to see if there is any information about this structured deposit.

As the equity market is now quite high, I do not advise you to make a switch into the Combined Fund now. Maybe, you should wait for the market to correct.


Dear Mr Tan,

The structured deposits are the Vitamin and Harvest accounts. Here are the fact sheets. This is a classic example of bad investment products that small investors should be aware of.


Dear WF

I suggest that you ask Bank X to tell you the following:

1. What is the payout for each year that you have invested up to now?
2. How much has the underlying shares appreciated during the same period?
3. What is the likelihood of early redemption (for the Vitamin account)?
4. What is the amount that you will get, if you decide to encash now (compared to the amount that you have invested.

I find these products to be quite complicated. I am not clear if the structuring is fair to the consumer. I hope that the answers to the 4 questions will shed some l light. You may be able to make a better decision, after you got these facts.

Let me wish you all the best for 2007.

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