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We are running a SMSF and were offered by Citibank a structured product with yield 6.5% (AUD) -8%(USD). We are not sure if this is an approved product for a Superannuation fund and wonder what your view is on structured products? Our understanding is that the Citibank structured product is based on the 4 big Banks performance and after 3 years if the any of the 4 Banks price is below 50% we will lose capital by the extent to which any bank price is below 50%. There is no Capital Gain to us if the bank prices rise.
A: I am not a huge fan of structured products per se, unless they meet a specific need that you can’t readily undertake yourself. Most structured products result in the retail investor indirectly selling an option (in this case, you are selling a put option, with the premium paid to you through a higher yield).
If you are really comfortable with the risk/return tradeoff, then go ahead – otherwise, my advice would be to exercise caution.
Can your SMSF invest in structured products? Unless it is restricted in your investment strategy, then the answer will generally be “yes”. That said, to avoid any potential misunderstanding in the future, I would suggest that the Trustees meet and amend the investment strategy to specifically allow structured products.
