Frequently Asked Questions — Margin Lending

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» What is margin lending?
» At what value is my geared portfolio in a margin call?
» How can I deposit funds into my margin lending account?
» How long does it take to set up a margin lending facility?
» What advantages does margin lending have over gearing a property to buy shares?
» What ongoing costs are associated with a margin lending facility?
» What risks are associated with gearing, and how can I reduce them?
» Will I retain beneficial ownership of my investments at all times?

What is margin lending?

Margin Lending is a loan facility that allows you to gear your portfolio and make a larger investment in shares, managed funds and options.

Margin lending enables you to:

• Increase your participation in stockmarkets.
• Diversify an existing portfolio using additional borrowed funds.
• Direct regular cash flow into a structured, yet flexible investment plan.
• Release cash from an existing portfolio for other business or investment purposes.
• Use existing shares to finance new acquisitions such as rights issues, new floats and instalment receipts.
• Margin lending can offer convenience, liquidity and minimal administrative overheads.

At what value is my geared portfolio in a margin call?

You can calculate the value at which your geared portfolio will be in margin call by:

1. Dividing your loan balance by the sum of the portfolio Lending Value.
2. Multiplying the Market Value of your portfolio by your Margin Lending Buffer percentage.
3. Add together the figures from points one and two above. This figure is the portfolio value point when your facility will be at the margin call level.

How can I deposit funds into my margin lending account?

How you deposit funds into your margin lending account will depend on the provider of your margin loan facility. For further information on how you deposit funds into your margin loan account, please contact us or talk to your margin lending account manager.

How long does it take to set up a margin lending facility?

A margin lending facility can usually be set up in three to five working days. However, if you are setting up your facility in the name of a company, or you are providing managed funds as collateral, it may take a little longer.

To discuss the length of time it will take to set up a margin lending facility that is right for you, please contact us.

When buying shares, what advantages does margin lending have over gearing a property?

Generally, home equity loans will have lower interest rates than margin loan interest rates. However, you will need sufficient equity in your home to qualify for a home equity loan.

Gearing a portfolio of shares and managed funds provides you with a liquid and flexible investment. When investing in the sharemarket you may diversify your investment, liquidate your investment quickly, average your purchasing prices over time and obtain dividend income and franking credits.

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What ongoing costs are associated with a margin lending facility?

Generally, the only ongoing cost associated with a margin loan is interest.

Interest can either be paid in advance, paid each month or capitalised to your loan depending on your individual circumstances and what is right for you.

What risks are associated with gearing and how can I reduce them?

Gearing your investment can increase your investment risk. While greater exposure to the sharemarket multiplies potential profit, it also increases the risk of loss if share prices fall.

Will I retain beneficial ownership of my investments at all times?

Yes. You retain beneficial ownership of your investments held as security for your margin loan. When your loan is established, the investments provided as security for your loan are sponsored through the CHESS system by a Custodian. The shares are held in your name and address and you will receive all correspondence pertaining to the shareholding.