What exactly are Dual-Currency investments? Find out if they’re suitable for you
In today’s economically volatile environment, investors have mounting choices of investments with variables of risk, principal amounts, tenure and principal protection.
Financial institutions are kept on their toes trying to strike a balance in providing best customer-service while delivering sound financial advice of best possible returns while factoring in external socioeconomic factors.
More often than not, fuelled by lacklustre safety nets, investors fall back on the tried and tested, safe single-digit growth type investments.
But there is another option worth exploring, which is dual currency investment (DCI), for the higher-risk appetite investor.
A fairly low-key option, this product is only offered to select investors, as there is a sizeable minimum outlay (typically north of S$18,000) required depending on geographical location and financial institution.
It provides an opportunity for greater yield and shorter tenure ranging from 1 week to 3 months making it a more attractive option over a conventional fixed deposit rate.
Who it is for
This is a favorable option for clients who prefer a faster turnaround time for returns to show.
DCI is suited for investors holding more than one currency as it ranges from more dominating currencies such as USD, EUR and GBP to CHF and NZD.
The wide array of currencies allows for some risk mitigation based on various internal and external economic factors.
Based on advice from financial institutions on exercising spot rates and strike rates, investors are able to make the best decision on their portfolio.
Markets with relatively stable economic environments are usually preferred for longer-term sustainable growth returns.
In all its benefits and rewarding opportunities, be forewarned DCI has its share of shortcomings.
A potential investor should bear in mind that the product is not an ordinary fixed deposit nor a foreign currency deposit but an investment structured product embedded with a currency option and therefore exposed to foreign exchange rate fluctuations.
Knowing the risks
DCI holds higher risk as it is not principal protected, categorised outside the confines of being an insured deposit under the Statutes of the Republic of Singapore.
This ultimately translates to possible lower returns or in worst case scenarios, capital loss if the maturity period is not honoured or there is an early withdrawal or termination of the placement.
Another potential inconvenience of DCI is although it is possible to redeem principal and profits in the alternative currency, any conversions back to the base currency is dependent on the market rate and may incur a principal loss.
The investor solely holds all profit or losses amassed from a placement.
DCI in Singapore
Singapore, being the financial hub of Southeast Asia, has a robust financial industry. DCI is widely offered by financial institutions here. But as always, as an investor, it is good to seek professional advice if there is any uncertainty.
Here is the list of the DCIs available in Singapore: