Key Points:

• Interest Rate Linked Investments (IRLI) are structured products in which returns are tied to movements in interest rates, offering both fixed and floating rate options.
• They provide potential for capital protection, predictable income for conservative investors, and higher returns for those with a higher risk tolerance.
• Be advised that these products carry higher risks compared to traditional deposits, including potential losses upon early withdrawal or redemption.

Keen to explore market opportunities with greater assurance?

What is Interest Rate Linked Investment?

Interest Rate Linked Investment (IRLI) is an investment product in which the performance is linked to reference interest rate movement. You can choose fixed or floating rate options, allowing you to achieve attractive returns from changes in interest rates. The yield is in the form of coupons that are paid periodically on certain dates. In summary, these products play a crucial role in the financial landscape by offering opportunities for both capital protection and income generation.

How does a fixed-rate IRLI work?

The yield in the form of a fixed rate always increases from year to year. Thus, this is also known as a Fixed Rate Step Up. Fixed Interest Rate-Linked Investments are suitable for conservative investors looking for minimal risks with stable and predictable income, while protecting their initial investment.

How does a floating-rate IRLI work?

In this option, the yield comes varies according to a reference rate, typically a benchmark like SOFR (Secured Overnight Financing Rate). Floating-rate IRLIs may be attractive for aggressive investors as they offer the potential for high returns in a rising rate environment. However, there are additional risks involved with floating interests because market rates may fall and lead to losses.

What are the risks of investing in IRLIs?

As a structured product, IRLI carries risks that are not normally associated with ordinary bank deposits. Also, IRLIs are intended to be held to maturity. Early redemption may lead to losses. Additionally, IRLIs are not transferable or negotiable, thus any losses incurred can be deducted from the redeemed amount.

The bank may also choose to redeem the IRLI at the Early Redemption Amount on the Early Redemption Date. In that case, if the investor reinvests the notional Principal Amount, the yield on the reinvested IRLI may be significantly lesser than the first.

Let’s look at an example to understand IRLIs better

Fixed-rate IRLI

The yield is in the form of a fixed interest rate which will increase in respect to each of the payout period (Fixed Rate Step Up).

Scenario 1 (Best Scenario)

Scenario 2 (Worst Scenario)

If an early withdrawal of the IRLI is requested – in accordance with the early withdrawal requirements – the Customer will receive an early withdrawal amount determined by the Bank. Such early withdrawal amount will usually be substantially less than 100% of the Principal Amount. In the worst-case scenario, the early withdrawal amount can be zero. The Customer will not receive any quarterly payout following an early withdrawal.

Summary

IRLIs are an attractive avenue to both conservative and aggressive investors, providing either a steady income or high returns potential, depending on how they are customized for different profiles. As these products are tied to interest rates, factors like central bank policy and economic data will influence your investment. It is thus important to stay informed about market trends and economic indicators before making crucial decisions.