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Income Instalments - strategy idea

On Wednesday April 18, 2007, 20:22, hortons wrote -

Have you considered Income Instalments?

Leveraging into banks through Instalments has become an increasingly popular method for investors looking to enhance their dividend yield and potential franking credits (1).

Like other forms of gearing, Macquarie Instalments generate potential interest deductions. However unlike most forms of gearing there are no margin calls and the Completion Payment is optional. Plus, Macquarie Instalments are also an eligible investment within Self Managed Super Funds (SMSF).

This strategy idea is to look specifically at gearing into the banks through Macquarie’s Income Instalments.

So what are Income Instalments?

Like other types of Instalments, Income Instalments allow you to buy shares in two payments. An investor will benefit from any ordinary dividends (paid in cash) and franking credits (1), while gaining leveraged exposure to the share price. The key difference between an Income Instalment and an Ordinary Instalment is how interest is treated. At the end of June 2007, instead of being called upon to physically pre-pay your interest for the year ahead (as you would with a Resetting Instalment), interest is capitalised onto the loan amount and the loan rises by the interest payable (2).

Income Instalments are denoted by the fourth letter being “J”.

First look at the profile of bank stocks and then move to how you can exploit this through an Instalments strategy.

Instalments have their own risks and benefits which are described in the relevant Product Disclosure Statement and any relevant supplementary Product Disclosure Statement. Also remember that past performance is not a reliable indicator of future performance.

Any forecast dividends for the banks are made on reasonable grounds, but there is no guarantee they will actually occur. Actual dividends may differ materially. Dividend forecasts are based on market conditions and may change without notice. As the forecasts are of a predictive and variable nature, you should not rely on them alone. They may be affected by inaccurate assumptions or by known or unknown risks and uncertainties.

Before making an investment decision, it is essential that, at that time, you make your own assessment of the prospects of the shares based on reliable sources and consider your financial objectives, situation and needs.

If you require further information on Income Instalments or on the assumptions on which this strategy idea is are based, please contact me at WFS.

(1) Subject to the investor being a qualified person.
(2) Subject to providing a TFN/ABN or exemption.

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