Margin Loan
A Leveraged Equities Margin Loan allows you to borrow, in addition to your own capital, to invest in shares, managed funds, cash deposits and assets within wrap accounts. You can leverage an existing portfolio or create a new portfolio to increase your investment opportunities more than if you were solely using your own capital.
- Features available
- What is a margin loan?
- Benefits & Risks
- Margin calls
- Case Study
- Download
- How to apply
Features available
- Exchange Options Plus : combine options transactions with margin lending.
- Short Plus : sell borrowed shares, with the intention of buying them back at a lower price at a later date.
- Instalment Plus : automated monthly saving plan.
- Property Plus : use the value of residential real estate as security for your margin loan.
- Rewards Plus : earn Qantas Frequent Flyer points on the loan balance of your margin loan.
What is a margin loan?
A margin loan is a revolving line of credit that allows you to borrow money which you use, in addition to your own, to invest. Acceptable investments (called Acceptable Investments) range from shares and managed funds to cash deposits or trusts, giving you a flexible facility that meets your investment objectives.
Typically, a margin loan 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
- need a flexible facility that works with their investment arrangements.
Benefits & Risks
A margin loan 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 Margin Loan 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 investment activities with the help of
a flexible facility : no set date to repay the loan,
online access to view and transact 24/7, a variety of interest
rate options and a wide selection of Acceptable Investments.
- Potential tax deductibility : you may be entitled to claim an income tax deduction for some or all of your borrowing costs depending on your individual circumstances.
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, such as margin calls, 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.
- A margin loan 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 Share A and Managed Fund B are Acceptable Investments and become the Secured Portfolio under your Margin Loan Facility.
Components of the Margin Loan Facility
| Share A | Managed Fund B | Total | |
|---|---|---|---|
| Market Value | $10,000 (5,000 shares 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 a margin loan | Without a margin loan | |
|---|---|---|
| Your funds | $20,000 | $20,000 |
| Loan | $40,000 | $0 |
| Market Value of Acceptable Investments | $60,000 | $20,000 |
| Positive impact : price increases | ||
| Market Value of Acceptable Investments after 10% assumed increase | $66,000 | $22,000 |
| Your remaining capital after loan repayment | $26,000 | $22,000 |
| Gain as percentage of funds you invested | 30% | 10% |
| Negative impact : price decreases | ||
| Market Value of Acceptable Investments after 10% assumed decrease | $54,000 | $18,000 |
| Your remaining capital after loan repayment | $14,000 | $18,000 |
| Loss as percentage of funds you invested | (30%) | (10%) |
Results
With a margin loan
- a 10% change in the market had a 30% positive or negative impact on your portfolio
Without a margin loan
- 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.
Margin Calls
A margin call occurs when the total amount owing exceeds the lending value by an amount greater than the buffer, where the buffer is typically a percentage above the acceptable gearing level to allow for intraday market fluctuations. You need to actively manage your facility to ensure you reduce the likelihood of a margin call occurring. Further detail is outlined in the Margin Loan Product Guide.
A margin call can occur based on the below example:
Assume the total amount owing remains at $40,000 but the market value of both items of secured portfolio decreases by 15%.
| Share A | Managed Fund B | Total | |
|---|---|---|---|
| Market Value (A fall of 15%) |
$8,500 | $42,000 | $51,000 |
| Lending Ratio | 50% | 70% | |
| Lending Value (Market Value x Lending Ratio) |
$4,250 | $29,750 | $34,000 |
| Percentage Buffer | 10% | 10% | |
| Buffer (Percentage buffer x Market Value) |
$850 | $4,250 | $5,100 |
In this case the total amount owing ($40,000) exceeds the lending value ($34,000) by $6,000. This is greater than the buffer of $5,100, therefore a margin call has occurred.
It is strongly recommended that you:
- take action if you believe a margin call appears likely to occur;
- ensure your contact details remain current; and
- seek financial advice before making decisions regarding your facility.
There are a number of ways to meet a margin call, including:
- reducing the total amount owing by using other funds to repay borrowed money;
- adding to the secured portfolio to increase the lending value; and
- selling part of the secured portfolio with the net sale proceed to reducing the total amount owing.
Download
Ensure you download and read the Margin Loan Product Disclosure Statement and Product Guide for more information on the Leveraged Equities Margin Loan. If you would like to apply, please download the Leveraged Equities Margin Loan Application Form Booklet.
- Download a copy of the Leveraged Equities Margin Loan Product Disclosure Statement
- Download a copy of the Leveraged Equities Margin Loan Product Guide
- Download a copy of the Leveraged Equities Margin Loan Application Form Booklet
- Download the Interactive Version of the Leveraged Equities Margin Loan Application Form Booklet
How to Apply
You and any Guarantor must read the Product Guide in its entirety before applying for a Margin Loan.
You can apply for a Margin Loan 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.
