Interest in instalment warrants amongst advisers is expected to swell as self managed super funds (SMSF) use them as an eligible and safe form of gearing and an alternative to shares.
The trading value of instalments - a loan used to buy shares - set a new record of $5.16 billion in 2006 on the Australian Securities Exchange (ASX), up 27 per cent on 2005.
There was $9.66 billion of premium traded on the warrants market in 2006, ASX equity markets business development manager Stirling Larkin told around 85 advisers and brokers at a briefing in Sydney yesterday.
"It's largely due to the fact that instalments are very popular with self-managed super funds," Larkin said.
"It's a way of generating wealth with a limited capital base; it's a way of receiving a regular and reliable income stream [and] they can be tax effective."
March 2007 saw new records set for instalments quoted on the ASX, with over 2345 instalment series available for trading.
The resources boom continues to drive activity, with BHP and Rio Tinto the most popular with investors followed by the S&P/ASX200.
Instalment-type products first appeared with the privatisation of the Commonwealth Bank and Telstra.
An ordinary, vanilla instalment is similar to a traded margin loan product packaged with loan insurance.
Risk factors include the fact that the interest costs on the loan may be higher than investment returns.
The ASX and accounting firm Ernst and Young are conducting a national road show in April and May for advisers on ASX-quoted instalments and their tax implications.
