A Margin Loan allows you to borrow money, in addition to your own, to invest in a wide variety of acceptable investments, including shares, exchange traded funds, listed investment companies, and managed funds. By borrowing to invest (also called gearing or leverage) you can build an investment portfolio larger than you would by using only your own funds.
A Margin Loan may be suitable if you:
- Want to increase the amount you have available to invest
- Believe that borrowing to acquire or manage your investment portfolio is a suitable strategy for your financial goals and expectations
- Require flexible features to manage your investment strategy
What is Margin Lending?
Margin lending is borrowing money which you use, in addition to your own money, to invest in financial products such as shares and managed funds.
Essentially, you are “leveraging” the value of your investments through borrowing.
You must have adequate cash or existing shares to use as security for the loan. Only certain shares can be used as security and the amount that can be borrowed will vary for different shares.
- Maximise investment opportunity – Borrowing additional money to invest increases your exposure to an investment, enhancing your profits and potential dividends earned if the portfolio rises
- Diversification – A Margin Loan can enable you to diversify your investment portfolio. Borrowing to invest gives you access to more funds, allowing investment into a different range of asset classes, industries and companies
- Potential tax deductibility – Depending on your individual circumstances, you may be entitled to claim an income tax deduction for some or all of your borrowing costs
- Changes in portfolio values and interest rates – It is possible the performance of your investments or changes in interest rates will result in you earning a lower return or incurring a larger loss than if you had not borrowed to invest
- Events resulting in your loan becoming due – Events, such as margin calls and events of default or termination, can result in some or all of your loan being due for payment in a short period, including immediately.
- Mismatch of cash flows and restrictions on the ability to deal in investments – Interest and other charges can become due for payment before you receive any distributions from your investments.
- Net proceeds may not cover the loan – You are required to repay the total amount owing when declared due irrespective of any net sale proceeds.
- Reliance on others – Reliance on operations, policies and procedures of the Lender, Nominee and Sponsor, and the Authorised Person acting in your interests.
- Powers of the Lender, Nominee and Sponsor – You give a Power of Attorney allowing certain acts by the Lender, Nominee and Sponsor.
- Legislative changes – Changes to legislation and taxation policies can impact your facility.
- A Margin Loan is more complex than a traditional loan – Gearing can magnify your potential gains and losses. Ensure you have read and understood the Product Guide, as well as obtain the appropriate financial advice before investing.