There is no such thing as a financial investment outside the economy. You are influenced by general economic conditions and consumer viewpoints. Given the global globalization that exists today, consumer prices are influenced not only by domestic circumstances but also by global environmental factors such as inflation, exchange rates, commodity prices, etc.

It is to be acknowledged that financial institutions face two challenges, due to increased product complexity, correct pricing, liquidity, and efficient risk management. Pricing problems are that markets for instruments used to create structured goods can not be liquid enough to achieve acceptable mark-to-market values.

Please note that each investment transaction has two components, namely the principal invested, and the return on investment generated. Investment intent is to optimize profit, while preserving principal. An enthusiastic investor may be able to do so at the risk of losing all or a part of its principal. A more conservative investor may be able to accept a lower return to protect his / her principal.

It is stated that the primary risk to the portion of return is market volatility. All derivative contracts have expiry dates suggested. On the expiry date, the contract value of the underlying assets determines the amount of return if the rights under the contract were not exercised prior to expiry. A sudden drop in the value of the underlying assets at the expiry date will wipe out the entire lifetime of contract accumulated benefit.

Please learn that to return for greater engagement to efficiency, the degree of protection can be reduced. For example, a product may be designed to provide a return of 75 percent of the principal, by reducing investment in the instrument of fixed income by 25 percent, allowing for greater investment in derivatives, and thus a greater upside potential. This commodity still provides protection against downside, but not 100 percent of the principal.

Please note that in traditional asset classes, structured products can be used as an alternative to direct investment , especially in markets where direct access is limited. For example, when a market is closed to foreign investors, structured products may be the only way to replicate that market ‘s output, without investing directly in that market’s securities.

Please note that determining suitability starts with understanding your client-his investment goals, risk tolerance, time horizon, financial status, knowledge of investment, and experience. And experience. The second step is for the Consultant to know the goods under consideration so that the product attributes and risk factors can be conveyed to the consumer in a way that he can understand.

It is stated that financial institutions are required to train their Advisers on the features and risk-return profile of any investment products that they recommend. Although the financial institutions have the duty to provide the training, the responsibility of product knowledge resides with the Advisers. All financial products have trade-offs between risk and return. Advisers should present products in a balanced way, highlighting the benefits, as well as the risks.

Please learn that market risk is the demand uncertainty arising from the fluctuation in the market values of the commodities at issue. A security’s market price is the existing price the security will buy or sell at. The market price is, in principle, the current value of potential earnings for the lender. Profitability-related factors present and future-affect the current market price. In practice, the market price is determined by supply and demand, to a large extent.

It is stated that a typical life insurance policy has an element of protection and an element of savings/investment. Part of the health insurance is used to include cover against death or other misfortunes, such as injury or terminal illness. The remainder of the premium is paid, payable at the program maturity, early termination of the program, or other times in compliance with policy conditions.

Please learn that life insurance typically invests the premiums in general funds obtained from all policies. Insurance funds investment is at the discretion of the insurer, subject to specified investment goals and regulatory solvency requirements. Like unit trusts, each policy does not have units allocated based on the premiums collected. Separate funds are maintained based on the nature of the policies issued. An insurer must maintain separate funds for participating (par) policies, non-participating (non-par) policies, and Investment-linked Life policies (ILPs).

It is to be acknowledged that since asset prices do not shift in synchrony, movement downwards in one asset may be offset by movement upwards in another. Hence, portfolio diversification is less costly and less unpredictable. Nevertheless, efficient diversification involves a broad portfolio, frequently beyond the reach of individual investors. ILP subfund gives individuals the reach to diversify through pooled investment structures.

Please learn that structured ILP subfunds are typically smaller in scale. The redemptions therefore represent a higher proportion of structured ILP funds than they do in a conventional ILP fund. Derivative contracts are hard to price and add market interest to. Structured ILP sub-funds are also valued less regularly (such as weekly or monthly) than other ILP sub-funds, which are valued daily.

The purpose of a benefit illustration is intended to show the future policy owner how the policy interest accumulates under realistic investment expectations. A significant aspect of the benefit diagram is to differentiate the guaranteed benefits from the policy’s non-guaranteed benefits. The Life Insurance Association, Singapore is responsible for issuing guidelines on benefit illustrations.

It is to be acknowledged that before making an investment decision an investor should have ample details and be held up-to – date on the results of his investments. Contact with customers is continuous, divided into the product life cycle in three stages:
 disclosure at the point of sale;
 disclosure at policy inception; and
 ongoing disclosure after policy inception.

Please learn that in the selling process of ILP the MAS allows a product description to be presented. All products for sale must contain details no older than 12 months prior to such marketing. The details to be reported in the overview of the company includes general policy information, fees and costs, and risk information.

It is to be acknowledged that the prospective policy owner will first read the product description, obtain a clear understanding of the features of the product, and then read the PHS that is prepared in question-and-answer format to answer any questions he might have. There should be no details in the PHS which is not in the description of the drug.

The options and warrants are identical. Both entitle to buy (“call” contract) or sell the underlying security (“put” contract): · In the quantity specified;
. At a specified price (referred to as the “exercise price” or “strike price”)
. On or before a specified date (called the “expiry date”)
Options and warrants grant the right to purchase or sell the material that underlies it, but not the responsibility. The warrant holder or the alternative will decide whether he exercises the statutory rights or not.

It must be remembered that standardized products are very complex. The degree to which consumers understand the products depends on their knowledge of investment and their level of financial literacy. For example, without prior familiarity with derivatives, it is difficult for consumers to understand the working of organized products.

Please notice that SIP compiles the advantages of (A) the annual feature of a bond payment; (B) future stock capital appreciation; and (C) the feature of fixed-deposit capital guarantee. Compared to the prevailing fixed deposit rate, the guaranteed annual return of 1 per cent is attractive, but not high, with the added upside potential if the six stocks perform well.

Please note that futures were initially only traded on goods, in a Chicago Mercantile Exchange (CME) dominated market. Nevertheless, after its launch in the 1970s, contracts on financial instruments became immensely popular and quickly overtook commodity futures in terms of trading volume and global market accessibility. There are two basic asset categories, for which there will be future contracts. These are 1. Commodity futures contracts; and 2.Financial futures contracts.

It must be recognized that payment netting is widely used to minimize the risk for both OTC and traded exchange items by counterparties. Payment netting minimizes the need for funds and shares to change hands, increasing the likelihood that at the end of the day each party will obtain what it is expected to get.

Please note that one way to counter this is to use publicly-traded derivatives. When the transaction takes place at an exchange, the risk of the counterparty is reduced as the exchange offers the assurance that contractual obligations are fulfilled through the principle of the central clearing party. Note that there is still a risk that the exchange itself may default although the risk may be low. For non-publicly traded derivatives products, i.e. over the counter ( OTC), it is becoming increasingly common to require counterparties to put up collateral to support the promises.

It is to be noted that the policy would be cancelled and terminated if all six stocks hit or surpass 108 percent of their purchase price. The average annualized return under the program is 5 per cent. Do not be confused by the reference of 108% and believe that the maximum return is 8%. The 108 per cent is used as a point of reference to assess early redemption.

It is mentioned that there is typically no need to include fixed income instruments in participation products for the main component of those products without any downside factor in the protection. Alternatively, derivative contracts are used to achieve the optimum return-risk pattern for the main and return components. There are many examples of the products within this category.

Please find out that both reverse convertible bonds and discount certificates offer capped upside potential without any downside protection. We share the same features of risk-return, though slightly differing in type. Discount certificates are formed when you combine two different types of choices. (Transaction costs will reduce the actual returns on the product.)

It is to noted that withdrawals can be made to meet its financial needs at any time. The single unit price basis helps consumers to make withdrawals without having to pay a penalty for early withdrawal. Initially, when the investment period is long, the policyholder can afford to take greater risks by investing in equity funds with higher potential returns.

It is to be acknowledged that Products which are structured are very complex. The degree to which the consumers understand the goods depends on their investment knowledge and financial literacy level. It is difficult for the customers to understand the workings of structured goods , for example, without previous experience with derivatives.

Please learn that an ILP offers two methods of paying fees and charges. One isw ay is by premium deduction or unit cancellation. For example, before the balance is invested in the underlying ILP subfunds, the upfront sales commission is deducted from the one premium. The other way is by payment directly from ILP subfund assets. For example, fund management charges and auditor fees are deducted from the net asset value of the fund, prior to determining the unit price. Marketing and promotional costs, however, are NOT allowed to be paid out of the subfund.

It is to be acknowledged that semi-annual fund reports for each ILP subfund are prepared as part of the ongoing disclosure requirements. The report contains, inter alia, the following information about the fund values and performance: Investments at market value and as a percentage of NAV as at the end of the period under review; and the performance of the ILP sub-funds and, where applicable, the performance of the benchmark, in a consistent format, covering periods of three months, six months, one year, three years, five years, ten years and from the start of the ILP sub-fund.