Wealth Lending / Unit Trust Financing

Hi all, hope to get thoughts on the below
theres an offer for wealth lending at under 1% (0.5 + 1mth sibor) currently from my RM if i pledge my UT (fullerton heritage income fund)

obviously leverage comes w/ risk of margin calls and interest rate risk; assuming the fund provides dividend of 4.5% pa and I do a more conservative leverage of 1.5X against an existing 40K UT, I’m looking at a buffer of around 10% before margin call. The benefit i get from this risk is extra mthly income; thoughts?

3

Discussion (3)

What are your thoughts?

Learn how to style your text

Frankie Rappaport

10 Jun 2021

Margin/leveraging does not work out well. And Unit Trust investing neither.

better choice nonleveraged passive stock ETFs for buy&hold

Reply

Save

1M45

10 Jun 2021

Obviously, you understand the risks.

Then we should see if it worth the risk, risk mitigation & option?

worth?
$40k × 4.5%= $1.8k p.a. or $150 per mth (no leverage)

$60k × 4.5% = $2.7k p.a or $225 per mth (1.5 leverage)

How much will you be paying the loan installment?
$225 - repayment > $150??

Risk mitigation
Although income fund is less volitale but still small amount of risk. If u really want, to take up this offer, u must have a plan B, in event of margin call or increase of interest, you should hold certain amount of cash.

option
Alternatively, if you want a higher payout. Why not just switch the fund to a higher dividend payout fund instead of borrowing?

$40k x 7% = $2.8k p.a or $233 per mth
Allianz growth and income fund.

Reply

Save

View 1 replies

Write your thoughts