Understanding your Risk Profile
Before investing in a Hybrid, you should ensure that you understand:
- the terms of the Hybrid;
- all of the risks and other information regarding an investment in a Hybrid; and
- your particular investment objectives and circumstances.
- Together, these will enable you to make an informed investment decision.
Some things to consider when determining your personal investment objectives and circumstances include your investment timeframe and objectives, market knowledge and experience and appetite for risk.
How does this apply to a Hybrid?
The terms of Hybrids are complex and involve increased risks compared to other less risky bank investments such as deposits. These risks are set out in the relevant prospectus and include potential non-payment of distributions, potential conversion into ordinary shares or potential loss of your investment.
Despite the terms of the Hybrids typically providing for regular distributions and the possible return of your investment (through redemption or conversion), you should not see Hybrids as an alternative to investments such as deposits which also pay a pre-determined distribution, given the risks associated with Hybrids.
You should examine the risks and not just the name of the issuer and the rate of return.
Just because a Hybrid is paying regular distributions does not mean that your investment is safe or that you are guaranteed to receive distributions. You need to understand the nature of the investment and the risks associated with it.
Overall complexity may make the security more difficult to understand. If you do not fully understand how they work or the risks, you should not invest in them.