UOB Structured Deposit 2013 Series
UOB's Structured Deposit 2013 Series was eye-catching as 9.3% looked quite interesting:
Other promotional information:
1. Total Guaranteed Fixed Interest of 9.3% of the Principal Amount over 5 yearsand 11 months (equivalent to an effective interest rate of 1.5687% per annum)
2. 100% Principal Amount guaranteed when held to maturity.
This structure product has a bonus interest component linked to 5 Singapore companies' shares price performance:
Potential Bonus Interest of up to 10% linked to 5 Singapore Company Shares
The potential bonus will be given out if all the above 5 stocks are above 105%, compared with the initial stock prices when the structure product begins.
Assuming an investment amount of S$10,000, held till maturity:
1. Best case scenario - If all 5 stocks are above 105% their initial values:
2. Worst case scenario - If any one of the 5 stocks are less than 105% their initial values:
However, upon closer examination, this structured product is less appealing. In actual fact, it is just an effective interest rate of 1.5687% p.a. for 6 years. Yes, your principal amount is guaranteed, but it is also locked in for the next 5 years and 11 months. There is a loss of liquidity, if any other opportunity arises.
Next, that the additional 2% bonus interest is not easy to get. You would need all of the 5 stocks to be 105% over the initial entry price in order to get the 2%. And it is 2% or nothing, there is no in-between bonus.
But can this happens? The main activities for these 5 companies (DBS, KEP, SMM, SIA and SPH) cover finance, marine, property, air transport, media, etc; which is a very wide coverage. It is a long shot that nothing bad would happen in such a wide field for the next 6 years, be it financial crisis, property bubble, oil price, regional conflict, pandemic, earthquake, volcano eruption, etc, etc. Just one of the stocks not doing 105% and the bonus interest will not materialize. Also, SPH price was hyped up by the launch of SPH Reit and it is not clear how the stock will move in the future.
Moreover, the interest rate 1.55% is fixed, which means it won't get higher with market fluctuation. As the 12 months FD is now at 1.18% p.a. (Bank of China), I would be very surprised if the 12 months FD rate will not move up to exceed 1.55% in the near future. Furthermore, ICICI Bank is already offering 1.55% p.a. for FD on 36 months tenure term.
This structure product supposed to end 31st August, but according to UOB's website, applications are now closed due to overwhelming response. People are rushing to take up this 1.55% p.a. structured product, but is it a really a "smarter way to invest"?
One last point, I wonder why UOB wanted to use its rival DBS as one of the 5 companies in the basket. Why not UOB???
Other promotional information:
1. Total Guaranteed Fixed Interest of 9.3% of the Principal Amount over 5 yearsand 11 months (equivalent to an effective interest rate of 1.5687% per annum)
2. 100% Principal Amount guaranteed when held to maturity.
This structure product has a bonus interest component linked to 5 Singapore companies' shares price performance:
Potential Bonus Interest of up to 10% linked to 5 Singapore Company Shares
| Shares in Underlying Basket | DBS Group Holdings Limited ("DBS") Keppel Corporation Limited ("KEP") Sembcorp Marine Limited ("SMM") Singapore Airlines Limited ("SIA") Singapore Press Holdings Limited ("SPH") |
The potential bonus will be given out if all the above 5 stocks are above 105%, compared with the initial stock prices when the structure product begins.
Assuming an investment amount of S$10,000, held till maturity:
1. Best case scenario - If all 5 stocks are above 105% their initial values:
Best Case Scenario (Maximum Interest Potential) | |||
End of Year | Guaranteed Fixed Interest Rate on Principal Amount | Potential Bonus Interest Rate on Principal Amount | Total Interest Payable |
1 |
|
|
|
2 | 1.55% | 2.00% | 3.55% |
3 | 1.55% | 2.00% | 3.55% |
4 | 1.55% | 2.00% | 3.55% |
5 | 1.55% | 2.00% | 3.55% |
At maturity | 1.55% | 2.00% | 3.55% |
Total interest payout | 9.3% | 10% | 19.3% |
Principal + Interest payout | S$10,000 + S$930 + S$1,000 = S$11,930 | ||
2. Worst case scenario - If any one of the 5 stocks are less than 105% their initial values:
Worst Case Scenario (Minimum Interest Payable) | |||
End of Year | Guaranteed Fixed Interest Rate on Principal Amount | Potential Bonus Interest Rate on Principal Amount | Total Interest Payable |
1 |
|
|
|
2 | 1.55% | 0% | 1.55% |
3 | 1.55% | 0% | 1.55% |
4 | 1.55% | 0% | 1.55% |
5 | 1.55% | 0% | 1.55% |
At maturity | 1.55% | 0% | 1.55% |
Total interest payout | 9.3% | 0% | 9.3% |
Principal + Interest payout | S$10,000 + S$930 + S$0 = S$10,930 | ||
However, upon closer examination, this structured product is less appealing. In actual fact, it is just an effective interest rate of 1.5687% p.a. for 6 years. Yes, your principal amount is guaranteed, but it is also locked in for the next 5 years and 11 months. There is a loss of liquidity, if any other opportunity arises.
Next, that the additional 2% bonus interest is not easy to get. You would need all of the 5 stocks to be 105% over the initial entry price in order to get the 2%. And it is 2% or nothing, there is no in-between bonus.
But can this happens? The main activities for these 5 companies (DBS, KEP, SMM, SIA and SPH) cover finance, marine, property, air transport, media, etc; which is a very wide coverage. It is a long shot that nothing bad would happen in such a wide field for the next 6 years, be it financial crisis, property bubble, oil price, regional conflict, pandemic, earthquake, volcano eruption, etc, etc. Just one of the stocks not doing 105% and the bonus interest will not materialize. Also, SPH price was hyped up by the launch of SPH Reit and it is not clear how the stock will move in the future.
Moreover, the interest rate 1.55% is fixed, which means it won't get higher with market fluctuation. As the 12 months FD is now at 1.18% p.a. (Bank of China), I would be very surprised if the 12 months FD rate will not move up to exceed 1.55% in the near future. Furthermore, ICICI Bank is already offering 1.55% p.a. for FD on 36 months tenure term.
This structure product supposed to end 31st August, but according to UOB's website, applications are now closed due to overwhelming response. People are rushing to take up this 1.55% p.a. structured product, but is it a really a "smarter way to invest"?
One last point, I wonder why UOB wanted to use its rival DBS as one of the 5 companies in the basket. Why not UOB???
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