Settling the dust in a disrupted investment market

1By John Field, CEO, FedGroup

Johannesburg – 19 August 2014 – Following recent disruptions in the banking sector, investors have been questioning how safe investments really are. The pros and cons of guaranteed versus secured investments have been heavily debated.

For investors interested in a low-risk investment, Participation Mortgage Bonds (Part Bonds) have become one of the industry’s most sought-after products. Simply put, a Part Bond is a secure interest bearing investment, backed by a first mortgage bond over property.  Should the borrower be unable to pay the interest or repay the capital, the secured property can be sold to recover all amounts owing.

Risk is further minimised through strict regulation. Part Bonds are regulated according to the Collective Investment Schemes Control Act which is enforced by the Financial Services Board. Capital value is thus preserved and protected by law.

Part Bonds promise investors an interest rate going forward. Unlike unit trusts, whose rate is based on past performance, which is not an indicator of future performance, Part Bonds can promise a rate to investors. When compared to inflation, Part Bonds offer a safe yet exciting investment opportunity. Against the latest 6.6% inflation figures, Part Bonds promise an 8.25% nominal rate giving the investor an effective rate of 10.2% with interest reinvested over five years. Part Bonds offer a more stable return compared to other debt instruments such as money market funds, and it has greater security.

Furthermore, there are no upfront fees when investing in a Part Bond, your investment is fully allocated to maximise your interest. Through Part Bonds, investors can enjoy a certainty of capital preservation, coupled with a consistency of interest and the security of property.

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