Investment Funds Multiplier
What is Investment Funds Multiplier?
An Investment Funds Multiplier (IFX) is a type of margin loan with a Periodic Repayment Plan or Lump-sum Repayment Plan in place of a Margin Call that allows you to invest in a wide range of acceptable investments. These include managed funds, trusts or master trusts with competitive loan to value ratios.
Typically, an IFX is suitable for investors who:
- plan to invest in a portfolio of Acceptable Investments and who expect the net return on their investments to exceed the cost of borrowing over their planned investment horizon;
- own an existing portfolio of Acceptable Investments and who would like to supplement or diversify their investments without selling their existing portfolio; or
- have considered a margin loan facility but prefer a regular monthly repayment plan instead of a margin call if their gearing ratio increases to a level that is not acceptable to the Lender.
Benefits & Risks
An IFX can magnify your investment gains as well as magnify your investment losses. It is important to be aware of both the benefits and risks associated with a margin loan. For more information refer to the Investment Funds Multiplier Product Guide.
Benefits
- Increase the amount available to invest : you borrow additional money increasing your available capital for investing. If the net return exceeds the borrowing costs to invest then a higher net return is achieved through borrowing than if you invested without borrowing.
- Diversify an existing portfolio without selling : borrow against a portfolio of Acceptable Investments already held allowing investment into a different range of asset classes, industries and companies.
- Manage your gearing ratio through a regular monthly
repayment plan instead of a margin call.
- Manage your investment activities with the help
of a flexible facility :
with no set date to repay the loan, online access to view and
transact 24/7, a variety of interest options and a wide selection
of Acceptable Investments.
Risks
- Changes in the value of your portfolio and interest
rates : it is possible that the performance of your
investments or changes in interest rates will result in you
earning a lower return or incurring a larger loss than if
you had not borrowed to invest.
- Events may occur that result in your loan becoming due for payment : Events of default or termination, can result in some or all of your loan being due for payment in a short period, including immediately.
- Mismatch of cash flows and restrictions on the ability
to deal in investments : interest and other charges
can become due for payment before you receive any distributions
from your investments.
- Net proceeds may not cover the loan : you are required to repay the total amount owing when declared due irrespective of any net sale proceeds.
- Reliance on the Lender, Nominee and Sponsor, and any Authorised Person : including the operations, policies and procedures of the Lender, Nominee and Sponsor, and the Authorised Person acting in your interests.
- Powers of the Lender, Nominee and Sponsor, and legislative
changes : you give a Power of Attorney allowing
certain acts by the Lender, Nominee and Sponsor. Changes
to legislation and taxation policies can impact your facility.
- An IFX Facility is more complex than a traditional loan : gearing can magnify your potential gains and losses. Ensure you have read and understood the Product Guide, as well as obtain the appropriate financial advice before investing.
Case Study
Borrowing to acquire a portfolio
In this example Managed Fund A and Managed Fund B are Acceptable Investments and become the Secured Portfolio under your IFX Facility.
Components of the Margin Loan Facility
| Managed Fund A | Managed Fund B | Total | |
|---|---|---|---|
| Market Value | $10,000 (5,000 units at current price of $2.00) | $50,000 (10,000 units at a current price of $5.00) | $60,000 |
| Lending Ratio | 50% | 70% | |
| Loan (Maximum amount you can borrow given the Lending Ratio) | $5,000 | $35,000 | $40,000 |
| Funds you contribute | $5,000 | $15,000 | $20,000 |
Comparisons between Gearing and No Gearing
| With an IFX | Without an IFX | |
|---|---|---|
| Your funds | $20,000 | $20,000 |
| Loan | $40,000 | $0 |
| Market Value of Secured Portfolio | $60,000 | $20,000 |
| Positive impact : price increases | ||
| Market Value after 10% assumed increase | $66,000 | $22,000 |
| Your capital after loan repayment | $26,000 | $22,000 |
| Gain as percentage of funds you invested | 30% | 10% |
| Negative impact : price decreases | ||
| Market Value after 10% assumed decrease | $54,000 | $18,000 |
| Your capital after loan repayment | $14,000 | $18,000 |
| Loss as percentage of funds you invested | (30%) | (10%) |
Results
With an IFX
- a 10% change in the market had a 30% positive or negative impact on your portfolio
Without an IFX
- a 10% change in the market had a 10% positive or negative impact on your portfolio
Gearing magnifies your gains and losses. You can increase your investment portfolio by 30% compared to 10% in a positive market, which is an additional $4,000 profit in the above example.
Download
Ensure you download and read the Investment Funds Multiplier Product Disclosure Statement and Product Guide for more information on the Leveraged Equities Investment Funds Multiplier. If you would like to apply, please download the Leveraged Equities Investment Funds Multiplier Application Form Booklet.
- Download a copy of the Leveraged Equities Investment Funds Multiplier Product Disclosure Statement
- Download a copy of the Leveraged Equities Investment Funds Multiplier Product Guide
- Download a copy of the Leveraged Equities Investment Funds Multiplier Application Form Booklet
- Download the Interactive Version of the Leveraged Equities Investment Funds Multiplier Application Form Booklet
How to Apply
You and any Guarantor must read all the Product Documentation in its entirety before applying for an Investment Funds Multiplier.
You can apply for an Investment Funds Multiplier as:
- an individual or two individuals (called joint borrowers) who are at least 18 years old;
- a company; or
- trustee of a trust (except as trustee of a self managed superannuation fund).
Refer to the checklist when completing the Application Form and return completed and signed forms to your nominated Financial Adviser or Broker. Alternatively, return forms directly to us. Contact details can be found on the Contact Us page.
