Back to: Gearing - borrowing to invest

 

Product overview

A form of gearing that allows you to borrow money to invest in approved shares or units in a unit trust, using your capital as security.

You contribute a certain amount, or margin, of the total portion of the portfolio so you are able to increase the size of your investment and the potential for higher returns without having to tie up more of your own funds.

Details
Interest rates	Approved Australian securities
Margin lending calculator	Apply
Margin lending brochure (PDF 1.29Mb)

Features

• Access to additional funds for investment
• Increase your investment portfolio and potential to earn greater returns
• In favourable market conditions, you can build wealth faster than if you only used your own funds to invest
• Potential for tax efficiency
• Borrow up to 75% of the value of your total portfolio
• Borrow from as little as $20,000
• Flexible repayment options: principal and interest, interest only or interest capitalisation
• Combine your regular savings plan with gearing, known as regular gearing
• Fees and charges - no establishment fees

Margin calls

– investment markets fluctuate regularly, which can affect the value of your portfolio. A 'buffer' of 10% is allowed in addition to your maximum portfolio-lending ratio, which means the value of your portfolio can fall by the amount of the buffer from its original value before a margin call is made.

A margin call will be made if the amount you owe is more than the value of your security plus the buffer. If this happens you need to restore your margin.

Case study

– Jim has an existing portfolio valued at $20,000. He has worked out that he can borrow up to $80,000. If he took out his maximum loan value, he could invest up to $100,000. He has chosen to borrow $50,000, giving him a total amount of $70,000 to invest (including his existing portfolio worth $20,000).

Jim can now invest the borrowed $50,000 in securities he selects from the approved securities list. He has chosen to make repayments on an interest only basis. In five years time he intends to cash in his portfolio. If at this time it has increased in value, he will be able to pay off the loan and keep any extra amount.

During the five-year period there may have been a margin call. This would have been made if the amount Jim owed was more than his portfolio security value, and he would have had to put in additional capital of his own, or sell part of his portfolio to restore the margin.