re: instalment buyers be very careful Be very careful if you...

re: instalment buyers be very careful Be very careful if you intend trading Installments on a super fund..!!

I have done this for many years and now being told that they are illegal for super funds due to the borrowing component of the installment.

The ATO is now looking after all the small super funds

This is fron the ASX site hope it helps.

Instalment warrants

What are Instalment warrants
Reasons to invest in instalments
Types of Instalments
Investment strategies using instalments

What are Instalment warrants?
Instalment warrants give you the ability to buy listed securities by paying several instalments during the life of the warrant. General characteristics of instalments include:
The issue price (or purchase price) is usually around 20-50 per cent of the market value of the underlying securities at the time of issue. The value of the remaining instalments represents a loan by the issuer which you repay to exercise the warrant.

Some instalments have varying degrees of gearing, ranging from 50% to 110%. The more highly geared the instalment is, the higher the loan amount.

Instalments are issued over a range of underlying assets. These include blue chip companies, such as BHP and NBA, and listed manage investments, such as listed property trusts and exchange traded funds. Instalments are also offered over a basket or portfolio of shares. These baskets may cover a specific sector of the market, such as property, or they can provide a broadly diversified exposure to the market. This allows you to purchase a packaged investment that simplifies the process of diversification and may help to reduce transaction costs. Click here to view the range of basket/portfolio instalments.

Unlike instalment receipts (such as Telstra 2), you can choose not to pay the final instalment at expiry. In this case you will usually receive a payment from the warrant issuer equal to the value of the underlying instrument less the amount of the final instalment and costs.

An interest component is usually part of the instalment payments, meaning that an investment in instalment warrants may have taxation consequences. Generally the interest is prepaid for the life of the instalment or over a specific period of time (usually 12 months).

You are entitled to the benefits of dividends or distributions (including franking credits) paid on the share during the life of the warrant. Instalments may also pass on the voting entitlements of the underlying instrument.

Instalment are usually 'covered', meaning that for every instalment warrant you hold, the issuer is holding an equivalent number of shares in a trust/custody for your benefit. This provides you with the beneficial ownership of the share

Download the ASX brochure on Instalments *pdf 77K

*pdf documents require Adobe Acrobat Reader

Features of instalments

Types available Call
Underlying Instrument ASX listed securities including shares, listed property trusts and exchange traded funds
Settlement Deliverable or cash settled
Exercise Style European or American
Expiry Date 12 months to 5 years
Conversion Ratio 1:1

Reasons to invest in instalments
Gain leveraged exposure to a rise in the price of shares (short to long term views)
Gain a diversified exposure to a rise in the price of shares (short to long term views)
Derive an income through an entitlement to dividends that may also provide the benefit of franking credits
Provide a geared component within a self managed super fund (SMSF)
Leverage or diversify an existing share holding by converting existing shares for instalments and a cash payment - the cash extraction strategy

Example of an ordinary (or vanilla) instalment

Warrant Code NABIOC
Underlying instrument Ordinary shares of National Australia Bank Ltd
Warrant type Instalment warrant
Expiry date 23 June 2005
Exercise price $20.00
Exercise style American
Conversion Ratio 1:1