7 Key Investment Products in Personal Banking
With many asset classes and investment products such as Equities, Bonds, Fixed Income, Unit Trust, Insurance and lots more, which are the important products in Personal Banking? What do Personal Bankers look at? What are products being recommended to clients?
We look at 7 key investment products in Personal Banking:
No. 1 Deposits
Though deposits are generally and legally not defined as investments, it comes with systemic risks such as bank-runs or institutional bankruptcy. Almost every year, there are at least a few banks going bankrupt.
The assurance of the deposits is thus subject to the safety of the bank – and also why we tend to bank with larger banks. Smaller banks have to pay higher interest rates to attract depositors. So, placing a deposit with a bank is almost like investing into the “right bank”.
Examples: Savings Account, Current Account & Fixed Deposit
- The list of US banks going bankrupt every year since 2000
- Singapore Deposit Insurance program insure up to $50,000 of aggregated account in each bank.
No. 2 Stocks
Also known as Equities and is the most important & common asset class.
It is hot topic and the conversation starter for all investments. It is always exciting to discuss about how $10,000 could had been invested into the stock 3 years ago, and that would had been $20,000 today. Blow up the number to $1 Million, and it will be $2 Million today.
Many investment products such as Exchanged Traded Funds, Stock Options, Equity-Linked Notes are directly or indirectly created from stocks.
Examples: DBS Bank, Singtel, SGX, Cheung Kong Holdings, Apple & Alibaba
No. 3 Bonds
After stocks will be bonds. For a long time, many bonds were only offered to accredited investors, where bonds are issued in $200,000 and above denominations. The regulation & large entry amount restricted the bonds access from many retail investors.
As Asia financial market develops and bonds awareness grew, bonds are now more easily accessible. Some bonds are issued as low as $1,000, allowing for a wider pool of investor’s participation.
Bonds provides regular coupon payout and is often a good alternative to fixed deposit, albeit higher risks.
- Government Bond – SG31A0000001 01062025 S/A 2.375%
- Corporate Bond – Capitaland 20092022 S/A 4.076%
” When interest rate rises, bond prices drop “
No. 4 Unit Trust
Unit Trust is the most popular investment product because of it’s simplicity. You don’t have to know stocks or bonds. Lack the time to manage money or not familiar with investments? Leave it to the Fund Managers who manage Unit Trust.
Most banks have a funds list of 50 to 200 funds to choose from. To achieve global diversification, an investor into stocks / bonds will need a few million dollars. Through Unit Trust, the invested amount can be done with as little as $1,000.
Unit Trusts are professionally managed funds that invest into pre-determined mandate such as in equities, bonds, properties or commodities. There are global funds, regional funds and popular single country funds like China and India.
Examples: First State China Fund, Aberdeen Asia Pacific Equity
No. 5 Structured Product
Started in banks after the dotcom or tech bust in 2000. Structured products are customised investment solutions for high net worth clients, was then introduced to retail clients.
In the early days, only structured deposits with principal protection was offered. As investors became more familiar with investments, non-principal protected structured notes were introduced.
Structured products are a great addition to client’s portfolio. As the risks and rewards of the investment are customised, it provides investors choices in investments decisions.
A popular product is Equity-Linked Notes. You are able to help client participate with higher yield returns while hoping to buy the stock at a discount.
- Selected Equity: DBS Bank
- Spot: $20.80
- Strike Price: $20
- Yield: 10 % p.a.
- Period: 1 Month
And since it is stocks and duration can be structured for the short-term, it provides ample opportunities to follow up with and understand clients, enhance relationship, which will allow you to provide more financial advice and recommendations to clients.
Example: Equity Linked Notes (ELN), Index Linked Notes, Interest Rate Linked Product, Commodities linked Product, Fixed Coupon Note (FCN)
Components: Underlying Asset, Options & Other Derivatives.
No. 6 Dual Currency or Currency-Linked Investment
Dual Currency is also a structured product. In Personal Banking, it is an important and distinct product as it offers access to foreign currencies such as USD, EUR, GBP, AUD & NZD.
Like Equity-Linked Note, it allows investors to customised the risks and returns.
- Selected Pairing: SGD Against USD
- Spot: $1.3500
- Strike Price: $1.3450
- Yield: 3 % p.a.
- Period: 1 Month
This product is popularly used as an investment to enhance yield / interest rates and to prepare funds for future needs such as buying overseas properties, university education or retirement planning.
No. 7 Insurance
Bank + Insurance = Bancassurance
Ever wonder how insurance made its way into banks?
Savings was growing in banks so fast that banks were unable to lend out fast enough. Insurance companies wanted to sell insurance policies and endowment savings plan where the money are parked in bank accounts. It was the perfect collaboration as banks and insurance companies formed partnership.
Today, almost all banks distribute insurance products as part of the wealth management offerings.
Example: Single Premium Endowment, Regular Premium Endowment, Whole Life, Investment-Linked Policies & Universal Life
These are the 7 important Investment Products in Personal Banking. Did we miss out any?
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- 3 Reasons Why Good Investment Idea may be a Bad Idea
- 8 Reasons Why Building a Portfolio is Tough in Asia