Today I heard about yet another structured product. Recently launched by Prudential Unit Trust Berhad, the Prudential Asia Pacific Income Fund (PruAPIF) is described as a “3-year close-ended retail structured product”. The fund will invest mainly (at least 90% of NAV) in a structured deposit issued by Deutsche Bank Malaysia (Deutsche). 

By feeding into the Deutsche’s structured deposit this way, the PruAPIF allows retail investors to participate in a structured deposit product with a minimum initial investment of just RM5,000, and RM1,000 for subsequent investments. Normally, for direct investments in structured deposits, the minimum amount is RM250,000.

Deutsche’s structured deposit  is said to invest in RM-denominated fixed income securities which will generate interest income over a 3-year period. The interest earned will be swapped for over-the-counter (OTC) options giving exposure to a basket of 30 blue-chip Asia Pacific stocks in markets such as Japan, Australia, Taiwan, Hong Kong, South Korea and Singapore.

Other key features of the PruAPIF include:

v      Capital protection: capital is protected if held until the maturity date

v      Annual coupon payout: each quarter, the performance of each stock is computed and the returns are capped at a limit of 5% and a floor of minus (-) 5% and an average return calculated for the portfolio. At the end of the year, the investor will receive the sum of the portfolio performances from the four quarters of the year giving a potential maximum return of 20%. Since the capital is protected, there would be no negative returns and the worst case scenario would be a 0% return

v      Fees: A sales charge of 3.75% is imposed with no Annual Management fee

Meant as a medium term investment, the capital protection factor combined with a potential returns upside of 20% p.a. make the PruAPIF an attractive alternative to fixed deposits. Even though this return of 20% is not guaranteed, it seems quite possible that the fund can achieve a return superior to fixed deposits given the exposure to Asia-Pacific blue chips. Although the percentage allocated for these stocks is relatively small, the buying of OTC options rather than the mother shares would presumably help to enhance the returns potential.

One billion units at RM0.50 each have been made available for sale starting 13 July 2006 and ending 26 August 2006, or until the fund is fully subscribed.

August 8, 2006: Please read my post-script to this post.