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Some investments make projections and claim that investors can expect a certain amount
of money after say 20 years. Consider this, "you will get more than X after
investing as little as X per month for say 15 years". The line may move you
but does the amount projected take into the consideration the effects of inflation
or taxation which are expected to give less than what it is worth on the surface.
Always treat projections with caution. Calculate what will happen to the projections
if it goes wrong - is it inflation is actually higher than what is generally expected?.
What you get at the end of the day may be very different. The current crisis afflicting
the region have forced many to revise their investment return forecasts sharply lower.
The sum of say RM500,000 could only be worth around RM220,000 using an inflation
rate of 4% 20 years from now. Always remember, inflation eats away the buying power
of your money. After taking into the effects of inflation and taxation, you may feel
that the returns projected are not so attractive anymore.
In addition, fees charged over the period could significantly affect how much you
get at maturity date. However, there are some investments which take into consideration
both the "hidden' factors.
Be especially careful if you come across "guaranteed" financial products.
The word "guarantee" normally catches the eyes of many investors. Although
such products have yet to make their mark in the local market, they are commonly
found in other markets.
Words such as "secure", "guaranteed", "safe", "risk-free",
"protected" and "promise" can be misleading in an advertisement/or
promotional material, unless it is appropriate. An advertisement and/or promotional
statement should not give the impression that the investment will always increase
in value.
In case you do come across such products elsewhere, study them carefully. Ask yourself
how long does the guarantee last? Some investments may have limited guaranteed period.
If it does have a limited time frame, what will happen to your investment after the
guarantee expires. Most importantly, check who is offering the guarantee.
Note that capital guaranteed products only guarantee your capital and not the return.
It simply means that you will get back what you put in. Again, there may be some
conditions attached to such products. Some funds will only give you full capital
protection if you lock-in your funds over the life of the investment. The fees charged
are also generally higher than normal investments.
In Malaysia, to protect investors, the Companies Act, 1965 regulates the contents
of prospectus issued by companies seeking listing on the KLSE. In addition, there
are also other regulatory bodies such as the SC which issues guidelines for the protection
of investors.
The Securities Commission (Unit Trust Scheme) Regulations 1996 prescribes the manner
in which unit trust advertisements, releases, statements and reports may be used.
Among others, the Regulations permit the issuance of advertisements and promotional
materials that have been issued with the written consent of the Securities Commission
(SC).
Under the unit trust scheme in Malaysia, the prospectus and supplementary prospectus
(if any) must be registered by the Securities Commission (SC). In this regard, the
prospectus, must, in addition to the information required under the Regulations,
contain the information required by these Guidelines.
The SC guidelines require that comparisons between two or more unit trust schemes,
or between two or more investments alternatives, to be be fair, reasonable, accurate
and be based on similar time periods.
Performance figures quoted or referred to in an advertisement and/or promotional
material should be independently sourced or verified. Performance figures displayed
must be actual rather than hypothetical results. Annualized returns are generally
acceptable if the actual returns for all the individual years are shown in addition.
While there are appropriate guidelines on investments, the onus is on the issuers
of prospectuses and brochures to ensure that comparisons with alternative investments
or savings vehicle explain clearly any relevant differences in guarantees, fluctuation
of principal and/or returns, insurance, and any other factors necessary to make such
comparisons true and fair.
Investors are advised to read and understand the contents of the prospectus before
investing. Among others, investors should consider the fees and charges involved,
the price of security and dividends or interest payable. Prices may go down as well
as up. The past performance of a security should not be taken as indicator of its
future performance.
If you allow yourself to be mislead by unrealistic claims it is your investments
that would suffer. As the saying goes "caveat emptor". At the end of the
day, the final responsibility lies with the investors.
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