Feb 11, 2006I don't know the exact details of this particular structured deposit. But if DBS Swing 7.0/l works like many other structured deposits that I have seen, Chan Chong Fatt might possibly get back even less money than he put in.
What's gone wrong with our deposits?
WE HAD supported POSB even though its interest rate was lower than commercial banks'. In 200l, POSB promoted aggressively a new product called Structured Deposit. The aim was to get better returns than the saving account. The placement was for five or seven years and upon maturity, the principal sum would be returned in full.
I was induced to transfer about $94,000 from my saving account to invest in this. Upfront, the bank deducted $8,412.36 for managing my funds.
Every year when I enquired about its performance, the answer was always the same. The fund was below the par value after five years.
What I fail to understand, especially for 2005, is that while my other investments are making a return of 5-12 per cent, why is the DBS Swing 7.0/l still under water?
The fund managers owe us an explanation. We were not told how the funds were allotted or what they had invested in. The other POSB Swing funds also suffered the same fate and are all below the par value of $1.
The Monetary Authority of Singapore should scrutinise this type of transaction.
Meanwhile, we have to wait for seven years to get back our principal sum and forgo the interest that we would have been earned if the money had stayed in the saving account.
Chan Chong Fatt
The fellow at the bank tells you that this is a structured "deposit", and that the principal sum is guaranteed. So you plonk down your $94,000, thinking that in the worst case scenario, you will still get your $94,000 back after seven years.
Actually they deduct $8,412.36 (as fees) from your $94,000. So the principal sum you invested is $85,587.64. Which means that after seven years, all you may get back is $85,587.64 for the $94,000 you put in.
That's assuming that your structured deposit is 100% guaranteed (some types may only be 90% or 80% guaranteed).
Risk is all part & parcel of the investing game. If you want higher returns, you must take on the risk of greater loss. That's acceptable to some people, and not acceptable to others. The problem here is that when a bank offers a "structured deposit", the word "deposit" will fool some risk-adverse people into believing that hey, this is a very safe thing, something like a traditional fixed deposit - you will SURELY get back at what you put in, and more.
Well, it doesn't work that way, unfortunately. More later - Mr Wang needs to bring his kids to enrichment class now.