Friday, 22 March 2013

Luxury Investment With Maybank Etiqa

These days, it has become a common scene to see our local banks actively coming up with "investment opportunities" every one to two weeks. The competition among local banks is no more about who can offer better rate of returns, but who can offer a better variety of investments. Investors these days, especially beginners are finding it hard to determine which kind of investment package will provide the best returns.

Here's an example of a basic investment + insurance product nicely packaged and pimped up to look like an exclusive investment package.

eTiQa Maybank Investments in Luxury
Let's take a look at what this investment has to offer!

Name of Product : Not specifically stated, I assumed it should be "Maybank's Luxury Edition Investment"

Nature of Investment : Taking advantage of emerging markets and rising economies, the demand of branded goods are constantly rising. Over recent years, luxury goods are being exported globally hence creating an opportunity for investors earn potentially higher returns in the luxury goods market. The Maybank Luxury Edition investment allows investors to tap into the performance of 6 luxury theme stocks listed at various stock exchanges.

Definition of Luxury Edition : Luxury Edition is a 3-year Single Premium closed-ended investment-linked insurance plan offering  a combination of insurance protection and investment for potentially higher returns in the luxury goods market.

Benefits from Investing in Luxury Edition :

  • Guaranteed Minimum Life Protection (Lump sum payout of 130% of your premium in the event that you die within the 3 years. In the event of death, the higher of the following shall be payable:
  1. The value of the available units as at the next evaluation date immediately following the date of notification of death; or
  2. Guaranteed Minimum Death Benefit as shown in the table below:

  • Guaranteed 100% Capital (You'll get back your investment amount, returning 10% of it at the end of the first year and the remaining 90% at maturity)
  • Potential Gross Cash Payout of 8% (Take note of the term potential here. You might or might not get a cash payout of 8% at the end of the 2nd and 3rd policy year)
  • Unique Memory Payout Feature (First time I'm hearing this but here's what it means : In the event that the cash payout conditions are not met in the 2nd year, there is an opportunity to receive the missed 2nd year potential cash payout if the conditions are met in the 3rd year.
  • Short Tenure (3 - year Single Premium investment-linked insurance plan)

What do you get after 3 Years (Maturity) :
Upon maturity, the higher of the following will be payable:
  • The value of the accumulated units based on the unit price at the valuation date immediately after maturity date; or
  • 90% of the Single Premium Paid

Sample of Potential Returns Calculation :

Note : The 0.30% per annum fund management charge is lower then that of a unit trust management fee. The fund management charge fee will be deducted from the day to day NAV calculation. 

Possible Returns based on Market Outlook :
The brochure for this investment shows possible returns based on 3 types of market condition. 
  • During a good market (bullish) where share prices are going up, the expected returns is 16% on the amount invested for 2nd and 3 year.
  • During a flat market, the expected returns is 8% on the amount invested. 
  • The good thing about this investment package is the protection over your principal investment during a bad market period (bearish). While you will might not get any form of returns during a bearish market, you do not face the risk of losing a single cent of the amount you've invested.

The guaranteed principal return policy is a good way to attract investors who do not wish to take any risk but at the same time would like to earn higher returns (in comparison to the FD rate of course). 

Do be reminded that the 16% and 8% are not guaranteed returns. These figures act as an example to illustrate the potential returns during different market conditions. The actual returns could be higher or could be lower depending on the performance of the luxury stocks invested in.

Charges :
  1. Initial Charge of 3.3% on your investment amount (one time only)
  2. Investment Tax of 8% over any returns given to you on the 2nd and 3rd year.
Qualification :
  • Entry age - Minimum 18 years old, Maximum 70 years old
  • Minimum Investment Amount - RM15,000

What is the actual profit over a 3 year period?
Since this is a new fund, there is no track record of the potential returns of this investment package. However investors should be aware of the following:
  1. There is an initial charge of 3.3% on your investment amount. If you intend to invest RM100,000, RM3,300 will be deducted immediately leaving you with RM96,700 as your starting investment amount.
  2. On the 2nd year, the possible returns are given back to you in Cash form and not reinvested. The same applies for the 3rd year. Therefore your profit for 2nd year will not be able to enjoy the returns on the 3rd year. Allow me to illustrate this:
Sample Calculation of Luxury Edition Investment
1) Initial Investment : RM100,000
2) Initial Charge Fee 3.3% : RM3,300
3) Initial Investment after deducting Charge Fee : RM96,700
4) Projected Returns for 2nd and 3rd Year : 8% per annum
5) % Tax deduction on profit made : 8% of profit

Profit before Tax for Second Year = 8% x RM96,700 : RM7,736
Profit after Tax for Second Year = 92% x RM7,736 : RM7,117.12

Profit before Tax for Third Year = 8% x RM96,700 : RM7,736
Profit after Tax for Third Year = 92% x RM7,736 : RM7,117.12

Total Profit = RM7,117.12 + RM7,117.12 : RM14,234.24

Sample Calculation if Profit for 2nd Year is Reinvested
Profit before Tax for Second Year = 8% x RM96,700 : RM7,736
Profit after Tax for Second Year = 92% x RM7,736 : RM7,117.12

Profit before Tax for Third Year = 8% x (RM96,700+RM7,117.12) : RM8,305.37
Profit after Tax for Third Year = 92% x RM8,305.37 : RM7,640.94

Total Profit = RM7,117.12 + RM7640.94 : RM14,758.06

If the profit for 2nd Year can be reinvested, you would not have missed out on an additional profit of RM523.82

What is the Annual Returns (over 3 years) of Luxury Edition based on 8% returns for 2nd and 3rd Year?
When we talk about the performance of an investment, we will refer to the annual returns. For example, investing in Fixed Deposit (FD) Rate returns about 3.5% annually. 

In the case of Luxury Edition, there will be no returns for the first year and investors will only start enjoying returns on the 2nd and 3rd year onward. Say for example the returns for Luxury Edition is 8% for the 2nd Year and another 8% for the 3rd Year, what is the average annual returns over 3 years for this investment?

Using an interest rate calculator, the average annual returns over 3 years is : 4.536%

Pros : The Luxury Edition Investment Package from Maybank has the potential to provide returns which are higher then the typical FD Rate. Furthermore the guaranteed principal return policy mitigates the risk of potential losses. 

Cons : If you intend to invest RM100,000, I believe there are better investment vehicles that are capable of providing higher returns then the Luxury Edition Investment package. However you are also exposed to the risk of losing part of your investment if the market is bearish over the next 3 years. The 3 years Life Insurance Protection is rather redundant and has no value added unless you expect to die within the next 3 years. 

The pros and cons are there for you to see. As an investor, the choice of investing your money is entirely up to you. Risk and Potential Returns are the two key factors when it comes to deciding on what to invest. The choice is now yours!

Cheers and Happy Investing

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Download the Brochure for Luxury Edition Investment HERE

1 comment:

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