Hi Mr. Tan,
You said, on many occasions, that the investors have been mis-informed about the "nature and risk" of the structured product. Can you explain what you mean and what actually happened?
REPLY
If you invest in a bond of a company, you stand the risk of losing your investment if this company goes bankrupt. To reduce this risk, you can spread your investment over 6 bonds. If any one company goes bankrupt, you only lose 1/6 of your investment. This is called diversification and is a sound investment strategy.
If you invest in a structured product with 6 "first to default" swaps, you stand to lose all of your capital if any one of these 6 swaps failed. You stand the chance of losing your capital 6 times. Instead of reducing your risk to 1/6, you are multiplying your risk 6 times. It is highly risky. It is madness.
Many people were misled into thinking that they are reducing their risk by diversifying their investment into 6 entities. The actual situation is that they are increasing their risk 6 fold by the "first to default" swaps on these 6 entities.
This actual "nature and risk" of the structured product has not been properly explained in the prospectus and in the explanation given by the sales representative.
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