Here is how you can create a "structured deposit" or principal protected investment that is better than the bank! You will need two products - a zero coupon bond + a high risk investment product.
In Singapore, it is difficult to get a zero coupon bond and so a substitute can be a single premium endowment. Currently HSBC has a product called Guaranteed Saver Plus that gives a guaranteed return of 2.75%pa return for a 5 years maturity period. Because it is an insurance product, the risk is the default risk of HSBC Insurance. However, under currently regulation, 90% of the guaranteed benefit of a life insurance contract is guaranteed by Singapore government if the insurer collapse. Indirectly, 90% of the benefit is eventually risk-free (if the plan is held to maturity).
Let's say a person wants to invest $100,000. He would invest 100000/(1.0275)^5=$87,316 to the single premium. This $87,316 will grow to become $100,000 at the end of 5 years. So this is how the principal can be guaranteed.
For the remaining 100000-87316=$12,684 you can invest in anything you want that is high risk in nature. It can be TOTO, 4D, stocks, funds ETFs, etc. I wouldn't put in TOTO and 4D since the probably of earning anything is close to zero (similar probably as the banks' structured deposits!). Perhaps investing in a single country fund or ETF provide a better chance.
The advantage of this DIY method is that the upside is unlimited while it provides the same principal protection like a structured deposit. It is also more transparent this way. This method is suitable for those who are conservative and cannot afford to lose their capital but is willing to wait for 5 years before cashing out on their investments.
Like this article? Subscribe to my newsletter below for more.