Bonus bonds - ‘turning investment into excitement’ – yeah right!

$2.245 billion (at September 205) of Kiwi’s money in Bonus Bonds think that’s right, it's New Zealand's largest unit trust, why do I think not.  Like most cash unit trusts, there are no entry and exit fees, and you are likely to get out what you put in, dollar for dollar but the potential return for most is appalling – and the ANZ laugh all the way to the bank.

While it is a Unit Trust structure this is where the similarity with others ends. The returns from normal unit trusts are based on the ownership of units, however not with bonus bonds - you participate by way of a monthly prize draw. So, if you don't get a regular interest or dividend return, what are the odds of winning a prize? According to their prospectus and promo material, bonus bonds offer the chance to win over $5.00 million in cash prizes and over 150,000 separate prizes each and every month.

The big monthly prizes are; one of $300,000, one of $100,000 and one of $50,000 then down to one of $5,000, one of $1,000 and around 200,000 prizes down to approximately $25.00. The total prizes per annum are around $73.00 million which sounds great but of the total sum ‘invested’ by Kiwi suckers, a paltry 3.3% per annum (which I must add is free of tax).

The odds of winning are distressing, 1 in 9,600 to 1 in 11,000, little more than a gamble at the TAB, lotto or casino really, but you at least should keep your capital. The investments supporting this massive fund are managed by the ANZ and are invested in secure, and simple assets such as Government stock (34.20%) and corporate bonds (13.40%) and New Zealand registered Banks (52.40%). Up to 25.00% can be invested in ANZ.

With such a simple investment strategy one ponders how does the ANZ justify the $31,254,000 (page 31 of Prospectus) or 1.39% in management fees that they scar off the ‘sucker investors’ each and every year – they really are laughing all the way to the bank on these obscene fees – the ANZ Bank that is!

Turning investment into excitement ? – I don’t think so. At best put $500 - $1,000 there, at least then you have a perpetual lotto ticket - that you can redeem at any time. By the way - don’t kid yourself this is really investing for a safe, secure future!

Original Article published September 2006

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