POSB Invest SingGrowth Account

I saw an advertisement for a POSB structured product, the POSB Invest SingGrowth account, in the newspapers the other day. Thought it would be good to highlight and have a look at this product.

The POSB Invest SingGrowth account is a 5-year equity-linked structured product that promises a fixed yearly payout with the potential of a bonus payout if a redemption event takes place.

A redemption event takes place when the share prices of Singapore Telecommunications Limited, United Overseas Bank Limited, Singapore Press Holdings Limited and SembCorp Industries Limited have all risen 15% or more above their original prices on specific fixing dates.

When that happens, the original investment will also be returned and the product will terminate.

Year Fixed Payout Bonus Payout
Year 1 2.78% -
Year 2 1.08% 0.50%
Year 3 1.18% 1.00%
Year 4 1.28% 1.50%
Year 5 1.38% 2.00%

The minimum amount for this investment is $5000 and here are some examples of how the payout will look like (using $10,000 as an investment). Note that the analysis and examples might not be exhuastive. I am relying only on the information found on the POSB website (link no longer exists).

Case 1: No redemption event

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $128

End of year 5: $10138

Case 2: Redemption event occurs at end of year 2

You will collect:

End of year 1: $278

End of year 2: $10158

Case 3: Redemption event occurs at end of year 3

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $10218

Case 4: Redemption event occurs at end of year 4

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $10278

Case 5: Redemption event occurs at end of year 5

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $128

End of year 5: $10338

Case 6: DBS/POSB goes bust

You will get back nothing as this product does not fall under the Singapore Deposit Insurance Act.

While the 2.78% payout for year 1 might look attractive, the actual yield for the 5 different cases are computed as follows:

Case 1: 1.55% p.a.

Case 2: 2.19% p.a.

Case 3: 2.02% p.a.

Case 4: 1.96% p.a.

Case 5: 1.94% p.a.

Conclusion

For a 5-year product, there are currently other better options around.

Comments

  1. James Tan says

    Hi, Lioninvestor,

    I’ve read your brief evaluation on POSB’s Invest SingGrowth A/C.

    I am currently looking to invest at the various structured deposits that local banks are offering and trying to gather a range of views on the timing and nature of these deposits.

    As such, I’d like to ask you a few questions and get your views on the current situation, if you’re willing:

    1. Would you be willing to open an Invest SingGrowth account with POSB, or a similar account with other local banks? Why or why not?

    2. Do you think the public’s appetite for these structured deposits has returned, a year after the DBS High Notes issue in 2008?

    3. Do you have any reservations about the new structured deposits being offered? Apart from POSB’s SingGrowth Invest, I am only aware of HSBC’s Guaranteed Saver Plus, which offers a capital guaranteed five-year endowment plan with an interest of 2.50% per annum plus a 0.25% p.a. yield enhancement. The ad for the account can be found on page A5 of yesterday’s (June 24) Straits Times.

    4. Is there any advice you have for investors considering any of these deposits?

    5. Are there any other insights/comments you would like to add?

    • says

      Hi James,

      Personally, I don’t invest in such products now. I go more for direct equity investments. Even a boring stock can give a higher yield than 2%.

      As you correctly pointed out, the HSBC guaranteed saver plus gives a higher return than this, so why would you want to consider this?

      The details can be found here:

      http://www.martinlee.sg/hsbc-guaranteed-saver-plus-premium-discount/

      In the light of High Notes and Minibond events, you can see more disclaimers given by the bank.

  2. Intheknow says

    I AGREE FULLY WITH LIONINVESTOR

    any structured product that offers less than 3% GUARANTEED p.a. yield should be ignored!

  3. Roger says

    Hi Lion,
    Am I right in saying that the way this is structured indicates the bank is bullish about equities? They expect equities to give more than 15% return that is why they capped it at 15% for a redemption. In other words, once equities soar the bank can cap its liabilities to the investor and pocket the limitless difference.
    You are right, the stock market is able to give better returns at this stage. I recently bought into a shipping trust that gives me more than 60% returns in a month, thus if I use what the banks normally use, annualised yield, I can then say it is 60% multiply by 12 = 720% returns.
    Am I right in saying all these from a financial perspective?
    Hey, who needs 3% when one can get 720% p.a.?

  4. Intheknow says

    The 15% return triggering a redemption is a ‘carrot’ to try to sell the idea of a possible early redemption if ALL the underlyings rise above 15% of their initial price. A 5 year lockin period is really very long, so the POSSIBILITY of an early redemption may make the product appear more attractive (although personally i think the chance of this happening is VERY LOW).

    Once the early redemption event happens, the entire structure knockouts and neither investor or structuring bank will earn further.

    This structure in fact indicates that the bank is BEARISH about equities. If they are bullish, they would not have incorporated the early redemption feature. Banks definitely want to LOCK INVESTOR FUNDS in for as long as possible while paying AS LITTLE interest as possible.

    The bank is actually hoping for NO early maturity which means NO bonus payout! Hence, they are bearish.

  5. Roger says

    Thanks IntheKnow for your insightful analysis. I see the logic in your message. The next question I am thinking of is how the banks use the money invested. Since the banks are bearish so they would avoid investing it in equities, so how are they making money from the money invested? Initially I was thinking that they are using the money to make more money from the stock market. Where else can they be making money from our money? Thanks

  6. del says

    hi, you mentioned for a 5-year product, there are currently other better options around. what are the other options – other than hsbc? thanks.

  7. del says

    i saw this but not sure of tm asia. find hsbc’s offer v confusing. anyway, thanks :)

  8. VSL says

    Hi Lion Investor,

    What is the true reason for POSB to launch Invest SingGrowth, now? Surely it does not need the cash as it is filthy rich. It does not say how it is planning to use the funds raised. Is POSB trying to make amends for the screw up caused by DBS?

    The only risk I see is when POSB goes bust (very unlikely) in which case investors lose their principal. Failure of any of the 4 underlying entities also does not constitute a Specified Redemption Event. The annual Fixed Payouts are not subject to market nor performance factors. No other risk is mentioned. So, if one is happy with min 7.7% interest over 5 yrs (still better than FD), isn’t this “safe” product a good deal? Or is it too good to be true?

    This is POSB’s own product. Why would POSB want to pay more interest on this product when it is already paying paltry interest to millions of customers? I suspect there is an ulterior motive behind this product but I can’t put a finger on it.

    • says

      Hi VSL,

      It’s a 5-year lock in so they would have to give better rates than a normal FD.

      Question:

      1) If you can “borrow” money at 1.5% pa and lend it out at 4% p.a., how much money would you want to borrow?

      2) If your FD rate is very low and not attracting as much capital as you like, what would you do? Create an alternative product to attract capital from the FDs that people have in other banks.

      POSB is not filthy rich. Recall that DBS just did a rights issue a few months back to raise capital. More capital is good in the current climate.

      • VSL says

        Lion Investor,

        Tks for your angle on this product. You have a point there.

        One would have thought that the easiest way for POSB to raise money was to simply raise its savings and FD interest rates. But then, other banks may also do likewise. Perhaps POSB is trying to create a competitive advantage by introducing Invest SingGrowth.

        The reason why I (and many others) are suspicious is due to the gross negative image of FIs over the last 9 mths. It will take time for FIs to regain their trust.

        Tks again, for your views.

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