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ADF Financial Services Consumer Council
Army March 14, 2013
Australian Securities and Investments Commission
chairman Greg Medcraft explains debentures -- and no,
they are not a loan to get false teeth fixed.
Delving into debentures
If you have a suggested topic for this column,
email ASIC at ADFcolumn@asic.gov.au
NEED TO KNOW
Unlisted debentures are
fixed interest invest-
ments that carry higher
risks than bank deposits.
Debentures are used to raise
funds from investors. In return, the
issuer promises to make regular
interest payments and return the
money lent at a future date.
If tangible property is offered as
security for repayment of the loan,
the notes can be called debentures.
Although a debenture issuer
may seem like a bank, they are not
a bank, so the government guaran-
tee for deposits of up to $250,000
does not apply. You could easily
lose all your investment if the com-
pany or project fails.
How will the company use your
money? The riskier the activity, the
more careful you should be.
Read the prospectus and seek
professional advice before you
It is important that you:
Understand the return being
offered and whether it will
compensate for the risks.
Compare the risks with other
investments paying interest.
Spread your investments across
other interest-paying products.
If the debenture is offered 'at
call' the company must repay
your money on demand.
But if you've invested for a
set period you usually cannot ask
for your money back before that
Unlisted debentures can't be
traded on a public market such as
the ASX, so it is difficult to sell
them if you change your mind.
Check the security
The prospectus should tell you
what security, if any, is offered for
For example, a company may
take your money, lend it to oth-
ers and then take a mortgage over
Check whether the other per-
son is repaying the company as
Unpaid or late repayments add
to the risk of the investment.
You can assess the value of the
security by comparing the value
of the loan with the value of the
other person's property.
To be safe, assume a compa-
ny's valuations are optimistic.
If the initial term of the invest-
ment can be extended, you will be
asked if you'd like to extend it.
If you do nothing, the com-
pany will automatically roll over
the debenture for the same set
term as the original investment
and you won't be able to access
your money until the end of that
Before you reinvest, check the
company's website for its finan-
cial report for the year, or other
information that could affect the
value of your investment.
ASIC has developed benchmarks
to help you assess the risks of
See our investor guide
Investing in Unlisted Debentures
and Unsecured Notes?
ASIC is also considering pos-
sible ways to strengthen regula-
tion of the debenture sector,
including how to ensure deben-
ture issuers are more financial-
ly resilient, and investors better
understand the products.
Remember, debentures are
higher risk than bank deposits and
you could lose your investment if
the company or project fails.
For more information see ASIC's
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