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When borrowing to invest, it is important to remember that while your returns can potentially increase, your losses can potentially increase as well.
We try to limit your losses through margin calls.
Falls in the market value of your portfolio can make your Security Value lower than the amount you have borrowed. To assist you in managing your portfolio, ANZ provides a buffer of 5% to give you additional time to take the appropriate actions to return your portfolio to a suitable security position.
If the 5% buffer is exceeded, ANZ will place your account in "margin call" - ANZ will attempt to contact you and you must either increase your security or repay your loan to the required level.
You shouldn't fear a margin call. It is not like a default on an ordinary loan. It's a timely reminder to review your portfolio and rebalance it. ANZ is simply asking you to restore the gearing ratio of your account to its agreed limit.
The buffer exists so that small falls in the market value of a portfolio don't result in a margin call. A margin loan account is 'in the buffer' if the loan balance exceeds the security value by a small amount – less than 5% of the value of the securities.
If a margin loan account is in buffer, further funds may not be borrowed until the account is restored to within normal LVR limits.
Whilst there is no need for further action in buffer, it is a timely reminder to review your portfolio and take action to restore your portfolio to normal LVR limits and avert a potential margin call.
If the market falls and a margin call occurs on your account, ANZ will always attempt to contact you or your adviser. It may not always be possible for us to contact you or your adviser, so it is your responsibility to determine when you are in a margin call and to take action to restore your position.
A margin call must be cleared within 24 hours. There are several ways to do this:
- deposit funds into your loan account
- contribute additional ANZ approved securities (shares or managed funds) or,
- sell part or all of your existing portfolio to pay down the loan balance so that the Security Value of your portfolio is more than the loan.
If you are not able to clear a margin call within 24 hours, ANZ will sell enough securities so that the Security Value of your portfolio is more than the loan. This will occur even if we were unable to contact you. It is important to note that once in margin call, subsequent rises in the market value of your portfolio will not clear a margin call.
Leveraging a portfolio is fast becoming a popular wealth creation strategy. However, you should be aware that while leveraging into investments increases the potential return on investments, it is important to recognise that it can also multiply the effects of falls in share market values. We therefore strongly advise you talk to your financial planner and/or stockbroker and ensure you understand the risks, the specific tax implications, as well as the legal and financial ramifications of a margin lending facility.
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