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Tuesday, June 6, 2006

Do you understand this structured product?

Taken from www.askdrmoney.com

Name of Product: "Income X Fund"
Distributor: 4 banks, 1 insurer
Type of Product: Currency arbitrage fund
Bold Claim: "9 % payout in the first year of inception of the fund."

The Facts:
A footnote explains that the payout may be made from the capital of the fund. It means the fund would be giving back part of your own investment and calling it a "payout".

There is no guarantee that any distribution will be made or that the frequency or amount of distributions as set out in the prospectus relating to the Fund will be met.

The sales charge is 5 per cent and the yearly management fee is 1.5 per cent.

For details of how this product operates, read Dr Money's blog. Personally, I find it very complicated.

Lesson: Do not invest in any product that you do not understand.

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