COMMENT POSTED IN MY BLOG:
The risk of the (Pinnacle Notes) is pegged to the credit worthiness of some 5 credit references of double A rating. Eg. UOB bank, Standchart and other financial entities of similar rating.
A credit event occurs should any one of the entities default. The recovery rate is about 40%, ie you get back 40% of your capital.
The risk to consider is or ask yourself can anyone of the entities default.? Eg. can UOB default? It would be terrible and it is not impossible. Consider the probability of that event happening. Almost near zero ......
The callablle feature kicks in after 1.5 years depending on the interest rate prevailing at that point in time. If it is called , capital plus some premium will be returned.
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REPLY:
The risk of 1 entity defaulting is small. But, when you have any 1 of 5 entitles failing, the risk increases by 5 times. It is still small, but it is not that small.
When it fails, you have to lose up to 40%. What do you get for this risk? Just 1% or 2% more a year? Is it worth the risk?
Most investors will be willing to give up 1% for the chance of gaining 40% (instead of earning an extra 1% for the risk of losing 40%!)
As you do not know the change of the credit event, it is not worth taking the gamble. I am sure that the product issuer knows how to calculate the risk better than the small investor!
The callable feature has a cost to the investor that is not clearly understood. It gives the product issuer an opportunity to make an additional profit (at the expense of the small investor).
When interest rate falls, the value of the underlying investments increased. The product issuer can redeem the structured notes at a fixed price, and keep the additional gains as their profit. The small investor has to re-invest the money at a lower rate of interest.
Tip: It is better to invest in a straight forward government bond or corporate bond, and earn an interest rate according to the level of risk.
Sunday, July 15, 2007
Pinnacle Notes - do you know the risks?
The Pinnacle Notes offers an interset rate of 5.25% per annum, with the following disclaimer:
The notes are not principal protected. Payment of interest and repalyment of 100% of the principal amount at maturity is dependent upon, amongst other things, the occurence of a Credit Event, a Mandatory Redemption Event or if the issuer exercises its Issuer Call Option.
In such circumstances, you will lose all or substantially all of your investment in the Notes.
Please refer to the Prospectus for more details.
With these types of unclear risks, it is really worth while to invest in the Pinnacle notes? Will you be stuck for the next 6 years with a low return? How much will you lose, if any of the events happen? What is the chance of it happening?
How much commission is earned by the distributing banks? How much does the Arranger earn on the product? Are the small investors getting a fair return for the risk that they are shouldering?
These types of products are too complicated for me. I do not invest in them. I discourage my family members from investing in these products.
The notes are not principal protected. Payment of interest and repalyment of 100% of the principal amount at maturity is dependent upon, amongst other things, the occurence of a Credit Event, a Mandatory Redemption Event or if the issuer exercises its Issuer Call Option.
In such circumstances, you will lose all or substantially all of your investment in the Notes.
Please refer to the Prospectus for more details.
With these types of unclear risks, it is really worth while to invest in the Pinnacle notes? Will you be stuck for the next 6 years with a low return? How much will you lose, if any of the events happen? What is the chance of it happening?
How much commission is earned by the distributing banks? How much does the Arranger earn on the product? Are the small investors getting a fair return for the risk that they are shouldering?
These types of products are too complicated for me. I do not invest in them. I discourage my family members from investing in these products.
Good experience with structured products
THERE WAS NO RESPONSE TO MY PREVIOUS POSTING OF THIS BLOG. I AM RE-POSTING IT TO INVITE CONTRIBUTIONS, ESPECIALLY FROM THE FINANCIAL INSTITUTIONS THAT HAVE MARKETED THIS PRODUCT.
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Do you have any good experience with structured products, e.g. promise capital protection and give you a good return?
Send the following details to kinlian@gmail.com:
* amount that you invested
* period of investment
* your total return
* fully capital protected (ie no risk)?
Note: This request is also open to the financial institutions that promoted or marketed the structured products. You can send good experiences to me (if any), so that my blog will be more balanced.
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Do you have any good experience with structured products, e.g. promise capital protection and give you a good return?
Send the following details to kinlian@gmail.com:
* amount that you invested
* period of investment
* your total return
* fully capital protected (ie no risk)?
Note: This request is also open to the financial institutions that promoted or marketed the structured products. You can send good experiences to me (if any), so that my blog will be more balanced.
Return from various types of investments
Hi Mr Tan,
The stockmarket is now at a high level. Is it risky to invest in the stockmarket now? Should I reduce my investments? What other types of investment can I make now? I find the interest rate on fixed deposit to be too low.
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REPLY:
If you are not familiar with speculating on the stockmarket, it is better to invest with a long term perspective.
You can read this FAQ on the return from various types of investments. This is measured on a long term perspective.
Generally, it is good to invest in equities, but I prefer to enter at a lower price level. There is no point to invest at the peak of the market (but we are not sure when the peak will be reached! )
The stockmarket is now at a high level. Is it risky to invest in the stockmarket now? Should I reduce my investments? What other types of investment can I make now? I find the interest rate on fixed deposit to be too low.
---------------------------
REPLY:
If you are not familiar with speculating on the stockmarket, it is better to invest with a long term perspective.
You can read this FAQ on the return from various types of investments. This is measured on a long term perspective.
Generally, it is good to invest in equities, but I prefer to enter at a lower price level. There is no point to invest at the peak of the market (but we are not sure when the peak will be reached! )
A customer focused organisation
A customer focused organisation has the following characteristics:
* identify the customer before dealing with the issue
* design processes to be convenient for the customer
Here are some common mistakes made by organisations:
* several accounts for the same customer
* have different processes for each type of account
* have different people to deal with each product type
* ask the customer to key in the account number (which is usually not available)
* design process for the convenience of the organisation (eg to save on manpower)
* identify the customer before dealing with the issue
* design processes to be convenient for the customer
Here are some common mistakes made by organisations:
* several accounts for the same customer
* have different processes for each type of account
* have different people to deal with each product type
* ask the customer to key in the account number (which is usually not available)
* design process for the convenience of the organisation (eg to save on manpower)
CASE Website
You can get a lot of useful information from the CASE website.
I find the sample agreements to be useful, eg on home renovation, tenancy. I hope that more sample agreements can be added, eg will, employment, etc.
I find the sample agreements to be useful, eg on home renovation, tenancy. I hope that more sample agreements can be added, eg will, employment, etc.
Use of ATM in other countries
I was told that in Europe, it is easy to withdraw cash in other countries using an ATM card. This is good for travellers.
I hope that, one day, it is possible to use a Singapore-issued ATM card to withdraw cash in Malaysia, Indonesia and other countries.
I believe that it is possible to withdraw cash with a credit card (if you know the PIN number), but the charges are quite high.
I hope that, one day, it is possible to use a Singapore-issued ATM card to withdraw cash in Malaysia, Indonesia and other countries.
I believe that it is possible to withdraw cash with a credit card (if you know the PIN number), but the charges are quite high.
Surgical Schedule
Some medical insurance plans has a surgical schedule that sets out the limit that can be claimed for each type of surgical procedure.
The surgeon may follow this limit and bill the patient for up to this sum. If the surgeon bills a higher sum, the difference has to be borne by the patient. The insurance company pays up to the limit.
This schedule helps to place a cap on the charges. The patient should ask the surgeon for an estimate of the cost, and if possible, to keep within the limit.
The surgeon may follow this limit and bill the patient for up to this sum. If the surgeon bills a higher sum, the difference has to be borne by the patient. The insurance company pays up to the limit.
This schedule helps to place a cap on the charges. The patient should ask the surgeon for an estimate of the cost, and if possible, to keep within the limit.
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