Came across an advertisement recently on Maybank Group's latest capital guaranteed investment-linked insurance product, the Fortune8. Considering the volatility in the share market now and low fixed deposit rates, I took a closer look at this product to see if it is going to be worthwhile investment.
In a nutshell, it is a 42-month single premium investment-linked product with the following characteristics:
- Guaranteed 5% cash payout at the end of the 18th month
- Capital guaranteed at maturity (end of 3.5 years)
- Death benefit in the form of lump sum payment of 125% (for entry age of 18-55) and 105% (for entry age of 56-70) of the upfront premium paid
- Potential upside from commodity investment which will be paid at the end of the policy
Let's breakdown the above one by one.
Firstly, there is a guaranteed interest payment of 5% at the end of 18 months. Straight forward - you get cash equivalent to 5% of whatever you paid as premium upfront. Note that the investment principal is known as "premium" because this is supposed to be an insurance product.
Secondly, your capital, in this case, the upfront premium/investment principal, is guaranteed as long as you hold this investment until maturity. Hefty surrender charge will be applied if you opt to withdraw early.
Thirdly, the death benefit that makes this product an "insurance". Note that this feature is unfavourable for retirees since the death benefit is significantly lower.
Lastly, the "investment-linked" component and this is where the catch is. Based on the e-brochure downloaded from Maybank's website, the bank has projected three scenarios and their respective expected returns. The peculiar thing is that the e-brochure states that they are interest rate scenarios while the investment is options on commodity-linked index. Perhaps Maybank has taken a view that commodity prices and interest rate moves in perfect correlation? Strange assumption though. Anyway, the expected returns under the three scenarios are:
(a) Bullish: Returns of up to RM130,162
(b) Flat: Returns of up to RM514
(c) Bearish: Zero return.
But what do these numbers mean? I have worked out what is your per annum return based on the 5% payout after 18 months and the above expected returns. This is what I call the all-in rate*, which you can compare against the per annum return of other products, such as fixed deposits:
(a) Bullish: 7.86% p.a.
(b) Flat: 1.58% p.a.
(c) Bearish: 1.44% p.a.
Also, note that the returns on the investment-linked part will only be paid at maturity.
Is this a good investment? Here's my personal opinion. To begin with, I will only invest in this product if I am taking a view that commodity prices will go up over the next 3.5 years. So, if my bet goes wrong, I still get 1.44% p.a., which is not bad. But what puts me off is that in the "flat" scenario, I am better off leaving my money in fixed deposit, which pays about 3% p.a. versus 1.58% p.a. projected for this product under this scenario.
Having said that, I am not convinced commodity prices will continue its uptrend for the next 42 months. The next 12 to 24 months maybe, but 42 months?
Comments are welcomed.
* For the more finance-inclined readers, the "all-in rate" is the IRR of the investment over the investment period of 42 months.
