GONE are the days when retail investors with a modest pile of cash were largely ignored by banks and other financial institutions.
In the past, banks offered investment options with extra spice and excitement only to the ultra-rich and institutional investors.
For anyone else, the choice was essentially between plonking their money in a fixed deposit or placing it in a unit trust.
Now, retail investors are looking for more sophisticated options - and financial institutions are delivering.
New products, some with rather confusing names, are being made available to the man in the street almost weekly.
Banks now understand that retail investors cannot all be lumped into one basket.
New breed
'Our customers are becoming more sophisticated and financially savvy. These products are aimed at providing our customers with greater investment options.'
- MS WENDY LIM, HSBC Singapore's head of consumer banking, who expects these types of products to become even more popular as customers become more affluent and sophisticated.
Some are happy to take a lot of risk while others are more cautious. Their financial goals vary enormously too.
As a result, banks are modifying products that were once the exclusive preserve of the rich, and lowering the limits applicable to these products.
Take HSBC's Global Reach Fund - investing in global equities, bonds and hedge funds - which was launched in March.
Previously, it was available only to institutional investors with at least US$1 million (S$1.52 million) in hand. Now, it is available to retail investors with just $5,000 to invest.
Says HSBC Singapore's head of consumer banking, Ms Wendy Lim: 'Our customers are becoming more sophisticated and financially savvy. These products are aimed at providing our customers with greater investment options.'
And as customers become more affluent and sophisticated, she expects these types of products to become even more popular.
Standard Chartered Bank Singapore's general manager for wealth management, Mr Dennis Khoo, says the current low interest rates are one reason that investors are looking for better returns than what a simple fixed deposit can yield, for instance.
After all, customers who place their money in, say, a one-year deposit, are getting meagre annual rates of about 1 per cent for amounts below $50,000. That does not even keep pace with inflation.
Of course, investors looking at more sophisticated products need to do so with their eyes wide open as they are not without risks.
Some are not capital-protected, which means investors may lose part or all of the original investment - though in good times the returns can be very attractive indeed.
Here are a few sophisticated investment options on offer to everyday investors.
Equity-linked notes
EQUITY-LINKED notes (ELNs) are a short-term instrument linked to underlying shares.
They typically expire after a period of between two weeks and a month when the investor stands to get the original outlay plus interest or shares plus interest.
United Overseas Bank's (UOB's) head of deposits, investments and insurance strategy, Mr Winston Teo, says ELNs mean investors can get a better return than interest rates while participating in the stock market.
But the original investment is not protected.
Investors typically need at least $25,000 to invest in ELNs, which are bought at banks.
How it works
The investor picks an ELN linked to a stock he is keen on.
Interest will be paid on the ELN according to a formula based on the underlying stock price and a so-called strike price or target price set by the financial institution.
The pre-agreed strike price is always lower than the stock's traded price at the time the ELN is purchased.
For example, the strike price may be 5 per cent below the current price.
If the underlying shares close at or above the pre-agreed strike price on the expiry date, the investor will receive the original investment plus interest.
If the price of the underlying shares closes below the pre-agreed strike price, the investor gets the underlying shares and interest income.
Mr Khoo recalls making a profit of $550 or a pro-rated 22 per cent annual return when he invested $30,000 in a Stanchart Sony ELN in May for a month.
Tips
Investors should invest in ELNs only if they are comfortable with taking delivery of the underlying shares if the ELN strike price is reached on maturity.
Customers should ask why a particular stock was selected for an ELN.
They should also try to assess market expectations for the counter.
Typically, stocks that are performing reasonably well - and covered by analysts - are selected for inclusion in an ELN.
If a stock falls on the day of maturity, investors can still hold the stock and sell later, says full-time retail investor Suryanarayan Subramanian, 46.
He invested $600,000 in an ELN last month.
'The danger when people get into an ELN is that they do it looking only at the best-case scenario. If you are comfortable with the worst-case option, you are playing the product right,' he says.
He adds that it helps if investors have the liquidity to hold on as prices of most stocks will eventually go up.
Structured products
THESE are products that expire over the medium term - up to 10 years.
They are targeted at investors looking for a safe place to park their money to earn returns potentially higher than those for fixed deposits and other investment products.
Typically, the instrument is a combination of a deposit and an investment product, providing investors a return that is linked to the performance of some financial instrument such as shares or foreign exchange.
Retail investors can jump in with as little as $5,000.
It may be capital-guaranteed, promising to repay the investor the full sum that he ploughed in at the beginning.
How it works
The UOB Target 9.5, for example, is a 100 per cent principal-guaranteed structured deposit that offers the depositor a guaranteed interest payment of 8.5 per cent of the deposit amount in the first two years.
This means an annual interest rate of 4.25 per cent of the deposit amount is payable in the first year and second year.
From the third year onwards, the depositor has a chance to earn a variable interest rate linked to the performance of an underlying basket of shares of 20 selected global financial and pharmaceutical companies.
What if the stock market crashes? Investors will still get variable interest as long as none of the 20 shares falls by more than 35 per cent.
Investors can bail out early if certain conditions are fulfilled. If not, the maximum duration of the investment is 10 years.
Tips
Investors should not invest blindly, say experts.
They should understand the underlying trend or outlook for the product and take a considered view, says Mr Khoo.
'Investors should invest only if they understand the underlying structure's trend and have some belief that the trend will happen,' he adds.
Another financial expert cautions that customers must note that their capital is guaranteed only if they hold the whole deposit amount to maturity.
Hedge funds
HEDGE funds are a relatively new investment vehicle whose fund managers have a far wider range of investing options available to them than managers of unit trusts.
Like unit trusts, hedge funds are a form of collective investment, where a fund manager uses funds pooled from investors to reap better returns from equities and other investments.
How it works
However, hedge funds have fewer restrictions on their investing techniques and strategies.
For instance, they can try to take advantage of a falling market by selling financial instruments they do not own yet - a technique known as short-selling.
The idea is they sell stocks, for instance, they do not own and then fill the order later, paying what they hope will be a lower price than the one they sold at.
These sorts of techniques help maximise returns for investors.
Hedge funds can also borrow money to use as capital, or invest in certain types of financial instruments.
Unit trusts are generally restricted to investing long term in shares, bonds and money market funds.
They cannot short-sell or borrow money to invest.
Tips
As hedge fund managers are less restricted in the strategies they can employ, they can do pretty much anything under the sun.
As a result, investors may see very dramatic gains as well as savage losses.
Still, hedge funds are sometimes touted as an investment that can lower the overall risk of a portfolio simply because they tend to move in directions different from those charted by other types of investments.
For the retail investor who wants to diversify his portfolio by investing in this instrument, he can invest in a 'fund of hedge funds', which is a hedge fund that invests in other hedge funds.
For instance, DBS Absolute Return Fund gives investors the opportunity to invest in a portfolio of hedge funds managed by more than 20 specialised hedge fund managers.
