Receive dollar-based performance through structured products
Since my last article on the subject of structured products I have received a number of enquiries from readers asking for more information. Due to the overwhelming response I decided to do this follow-up article and go over the most frequently asked questions.
First, for those who may not have read the original, here is a brief recap. I discussed a currently available structured product with the following benefits.
*Dollar based performance
*30% minimum return should the index end up positive
*Uncapped upside, if the index goes up more than 30% you receive full performance
*Capital protection if market doesn't fall more than 30% you will receive a minimum of 100% of money back
*Pay capital gains not income tax
Here are the most frequently asked questions that I received:
Q1) Can I invest later this year?
Unfortunately, no. These products are available for a limited time only. Once they are closed we cannot guarantee you will ever be able to get the same product with the same terms again. This is not a sales tactic, but rather due to the nature and pricing of the product as well as general financial market prices.In order to get the best possible deal, all investments are bulked together and executed at the same time. For example, with regards to the product above, after it closes you will not get anything similar until 2018. Even then the exact terms are unlikely to be repeated because of the low level of volatility in the US currently.
Q2) What exactly is a structured product?
A structured product is a collection of financial instruments, usually derivatives that are bunched together to create a single instrument with a specific risk return profile.
Q3) Is there a minimum investment amount and why?
Yes, in the case of the example the minimum amount is R60 000, but for different products the minimum could vary from R50 000 to as much as R500 000. The issuer sets these limits due to the cost of the derivatives they use to create the product.
Q4) Is my money taken offshore or will I have to use my foreign exchange allowance?
It really depends on the product. In the example given, no but in others it is a requirement.
Q5) Why is there such a long investment period?
To avoid paying high taxes. If you invest for a shorter period, the taxman will view your profits as income. By extending the investment period, you will be liable for capital gains taxes instead. Many products are listed on the JSE and you can always exit early if you need the funds. Just be aware that an early exit could result in you paying the income tax on your profits.
Q6) I have a share portfolio, but this seems better, should I sell my shares and invest here instead?
No need. If you were to sell your share portfolio, you may be liable for taxes on any profits. It is possible and better to do a share swap and avoid this tax event.
Q7) This sounds too good to be true, what’s the trick?
There is no “trick”. The performance is created using derivatives that can be sourced at better levels due to larger trading sizes. It’s just like if you were to buy a can of coke at a shop vs buying 10,000 cans direct from the factory. You are obviously going to get a better deal in a bulk purchase.
If you would like to find out more about our upcoming structured product offerings, please feel free to email email@example.com
or call +27 11 781 4454.