Financial institutions release a series of tranche products every now and then, but what are tranches and what does this mean for retail investors like you?
With rising interest rates and having to live with inflation, it's no surprise that investors are looking towards tranche products in hopes of securing their financial future. Let's dive deeper into some ways these short-term investments can fit into your financial portfolio.
What’s a tranche?
A tranche is a segment created from a pool of securities that are divided by risk, time to maturity or other characteristics to be marketable to different investors but the ones typically discussed among retail investors are insurance savings tranches, SSBs (Singapore Savings Bonds), treasury bills and structured deposits. Both financial institutions and the government release tranche products with limited allocations spanning across various investment horizons, release dates, risk levels and rates of return.
How tranches fit into your investment portfolio
Certain tranche products such as short-term endowment plans enable you to grow your wealth conservatively over a fixed time horizon. In times of volatility that's bound to stir even the riskiest investors, it's no surprise to see more investors flock towards conservative investments.
If you’re looking for investment products with more liquidity and less susceptibility to interest rate cuts, short-term investment products like tranches are a great option to park your spare cash, as they come with an element of certainty. To put this into perspective, if you invest S$20,000 into a product which provides a guaranteed rate of return of 2% p.a., your rate of return stays the same during the investment tenure, even if global interest rates fall.
Granted, there’s a trade-off with everything, and long-term investments benefit from the power of compounding despite their sensitivity to interest rates.
The top 3 investment products Singaporeans own are stocks, fixed deposits and unit trusts – a healthy mix of both long-term and short-term investments in a balanced portfolio. If your portfolio leans more towards long-term investments, then you might be looking for a product like the Singlife Secure Saver series to balance it out.
Why Singlife Secure Saver series may be suitable for you
It's always important to go through the terms and conditions to determine which benefits align with your goals and needs. Across the various products, some things to pay attention to would be:
- Premature withdrawals – some products in the market may allow investors to withdraw their money before the stipulated time to maturity, but it’s best to check if there are penalties incurred as these terms vary industry-wide.
- Insurance coverage – some products provide a death benefit and pay out a sum of money if the life assured dies during the coverage period. Morbid and unlikely, but your beneficiaries will receive the money and can put it to good use.
- Is the product protected under the Singapore Deposit Insurance Corporation (SDIC)? This will differ across financial institutions.
- How are the return rates in comparison to similar products from other financial institutions?
Every financial institution structures their products differently, and Singlife is one financial institution that offers insurance savings tranches to help you grow and protect your finances simultaneously. The key benefits of the Singlife Secure Saver series are:
- Guaranteed yield at policy maturity.
- An insurance component – the plan pays the death benefit should the Life Assured die.
- The policy is protected under the Policy Owners’ Protection scheme which is administered by the SDIC.
The devil's in the details, and it's always in your best interest as an investor to sieve through the fine print as all providers and products differ in their own ways. Click here to find more about the Singlife Secure Saver series.
Notes
As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premium paid.
