Gaining $1m of Equity market exposure with minimum capital at risk
You will be able to gain an exposure to the Australian or international stock markets at a cost which is just a fraction of your notional exposure. This allows you to be aggressive and obtain a material exposure to growth assets, knowing upfront the worst-case outcome and your maximum potential loss.
You are not locked-in to making Finance Cost payments on the Masti investment beyond the first year, which provides the unique flexibility to ‘walk-away’ if the Reference Index falls or your market outlook changes. The uncapped upside exposure provides your portfolio with the potential for positive returns if the selected Reference Index continues to appreciate over the investment term. If you invest in line with ATO Product Ruling 2015/01 your Finance Cost payments will be tax deductible1.
A Worked Example
You have cash on hand of $85,000 which you would like to invest into growth assets.
You have a positive outlook on the share market and wish to maximize the exposure you can obtain with this cash.
You will have up to $45,000 pa available for investment over the next couple of years.
We recommend you make the initial Finance Cost payment on an investment in Instreet Masti wholesale. This will give you leveraged exposure into the underlying asset. We have used $1M exposure to an equally weighted basket of BHP, CBA, WBC, NAB and ANZ with a Finance Cost of 8.25% pa in this example.
In the second and third years you are entitled to a 4% fixed coupon (as long as you choose to retain the Masti investment). This will be a receipt of $40,000 on your $1,000,000 exposure which we recommend you offset against the annual Finance Cost payment. This will reduce your effective ongoing cash flow requirement to 4.25% ($42,500 pa) in years 2 and 3
Outcomes
The initial investment of $82,500 provided $1,000,000 of exposure to an equally weighted basket of BHP and 4 banks, giving you significant leverage to equity market upside.
You will be able to deduct the initial 8.25% ($82,500) Finance Cost payment and any subsequent Finance Cost payments you make.
Importantly, in the worst case scenario outlined in Appendix 1, i.e. all stocks in the basket are lower in three years-time (we have assumed a dire scenario with all stocks trading at 50% below current levels); you will still have spent no more than $82,450 after tax to have $1,000,000 of market exposure over the maximum 3 year period. i.e. around 2.75% per annum.
In the event the market is higher, you will receive the benefit of your leveraged exposure.
Masti Reference Index falls (by any amount)
Summary of the strategy
Under your scenario you obtained an exposure to equity markets and have diversified your portfolio. You know the worst case outcome of this strategy upfront.
It is also important to note that the walk-away feature of Masti creates a unique opportunity. In the event that a significant fall in a Reference Index occurred after the Commencement Date, you have the ability to ‘walk-away’ from the Masti investment without penalty. In the event of a significant market fall, we are likely to recommend that you enact this walk-away feature and commence a new investment. This would allow you to ‘reset’ the investment at the lower market level. You would then be in a position to benefit from any market rebound that may occur from this lower level.
Important Information
Purpose of Document: The purpose of this Document is to provide indicative commercial terms only. The Documents commercial results are based on assumptions that may not be realistic. They are indicative only. Markets and market assumptions can change from the time and the commencement date of the Instreet Masti DPA product. Due care and attention have been used in the preparation of this document. However, actual results may vary and any variation may be materially positive or negative.
Document: This Document has been prepared by Instreet Investment Australia Limited ABN 24 622 827 589 (Instreet), a corporate authorised representative of AFSL 434776, and is current as at 12 August 2021.
Issuer and PDS: The Instreet Masti product is issued by Instreet Structured Investment Pty Ltd ACN 140 407 558 and the issue is arranged by Instreet. Instreet Masti is offered in a product disclosure (PDS) or Information Memorandum (IM). The relevant PDS or IM is available from Level 11, 2 Bulletin Place, Sydney, at the website www.instreet.com.au or by phoning 1300 954 678. In deciding whether to acquire or continue to hold and investment investors must first obtain the PDS and IM and carefully consider its contents.
General advice warning: The information contained in this Document is general in nature only. It has been prepared without taking account any potential investors’ personal financial situation, objectives or needs and the appropriateness of this information needs to be considered in that context. Advisers must form their own views on whether the Instreet Masti is appropriate after considering their clients’ objectives, financial situation and personal needs. We recommend you seek your own legal and taxation advice. The information may be based on assumptions or market conditions and may change without notice. This may impact the accuracy of the information. In no circumstances is the information in this Website to be used by, or presented to, a person for the purposes of making a decision about a financial product or class of products.
However, actual results will vary and any variation may be materially positive or negative.
No responsibility or liability is accepted by Instreet or any third party who has contributed to this document for any of the information contained herein or for any action taken by you or any of your officers, employees, agents or associates.
Past performance: Past performance is not a reliable indicator of future performance.
