15TH ANNUAL CHOICE
10 NOVEMBER 2020
Equititrust capital warranty
Shonky for Warranty, Schmarranty goes to... Equititrust capital warranty
"Earn 9.5% pa warranted," the ad says. "You wouldn't buy a telly without a warranty … so why would you invest without one," the ad says. Don't trust an investment offer that sounds too good to be true, CHOICE says. We guarantee that warranty is shonky.
Equititrust is a mortgage trust offering interest rates a bit above what you can get for bank deposits with similar terms. It uses the investors' money for developer and other property loans. The marketing is centred around its supposed safety, but the $10 million the company has set aside for its "capital warranty" covers only about 2.4% of the mortgage trust's value.
Now, most consumers understand warranties (such as for a toaster) to involve the replacement of the entire product should it prove defective. But there's no such promise for this investment.
What's more, the product disclosure statement quite clearly details the higher risks of investing in Equititrust compared with banks: for example, it's not as strict as banks when assessing the borrowers' capacity to repay their loans and accepts higher risks, and some loans are secured by developments that have yet to be built.
So despite advertising a warranty, Equititrust itself admits that "there can be no guarantee of a return of capital or income". As we said: why would you?