Saturday 6 July 2024

Why I Am Not Taking Part In the Guaranteed Interest Rate Product Offered by Chocolate Finance?

Wow, the recent talk of the town seems to be Chocolate Finance. Recently, I kept receiving Wat's App messages from friends or seeing online posts with regard to the super attractive S$20K guaranteed 4.2% interest income product by Chocolate Finance. To be honest, the old adage of if something sounds too good to be true, then it probably is. Personally, I am staying far far away from Chocolate Finance due to the following reasons:
Guarantee by Chocolate Finance Mgt Team

1. Product doomed for failure in event of sudden global interest rate drop to fight recession
I think that it is very irresponsible for financial product designer these days to use "guaranteed high interest rate" for a certain duration to attract investments. No matter what, there is still a lead time between actual collection of funds from investment subscription to deployment into the various auv-component funds constituting Chocolate Finance latest product offering. If interest rates were to suddenly plunge, Chocolate Finance will be dipping into its shareholder fund to compensate investors. Where got business take on excessive risk like that? 

2. It is a fallacy that many folks believe that as long as the legal title of their investments is being held by 3rd party custodian, this means that one's money is safe even if Chocolate Finance goes bankrupt.
The thing is that if Chocolate Finance business model collapses, investors will no longer be able to withdraw their funds immediately. During the chaos transition while regulator take-over, there maybe loss of electronic records from system, or even fraudulent collusion by senior management and their IT team in sending of electronic records to the custodian that is holding on to all assets separately as required by the Monetary Authority of Singapore ("MAS"). I can easily think of a few more scenarios that may happen to cause months of delay in ascertaining ownership of respective individual's investments as well as the completeness of records. 

Point number 2 actually also applies for other robo advisory platforms such as Endowus. But difference here is the strength of the shareholders of Endowus relative to Chocolate Finance. Endowus shareholders include UBS, MUFG, Singtel, Samsung, Prosus (largest shareholder of Tencent) and Softbank etc.

3. The guarantee is only for up to S$20K and until 31 December 2024.
It is a waste of time and efforts to move funds whenever another Fund Management Company come out with same pattern as Chocolate Finance to call itself having the best deal in town. I will rather spend the time concentrating on my career or spending time with my family. There are already many good products out there on Endowus (Cash Smart) ,MooMoo or Tiger Brokers that have good decent money market funds offering 3.5% to 4.6% return per annum and being able to withdraw on demand. It does not make sense for one to keep going after a newer product that professes to be the "best" in the market for a 4.2% return that is not much of a difference to other similar products in the market. 

Parting thoughts
Anyway, above are just my personal thoughts and views. This is a free world. For those who likes the thrill of constantly shifting their cash around for a better deal, do go for it! :)


  1. Hi Blade Knight,

    I disagree with your view that "If interest rates were to suddenly plunge, Chocolate Finance will be dipping into its shareholder fund to compensate investors.". Chocolate Finance invested in a portfolio of of fixed-income securities comprising of a collection of funds. If interest rate goes up, the underlying funds will experience capital gains. Therefore, there is no reason for them to make a loss in this situation. The risk is actually on the other side - i.e. interest rate going up in a big way. Not impossible, but given that we are in a near peak interest rate situation, the risk is low.

    And then, if the worst case situation happens, how good is their backing? Well, maybe you can read this:

    I am not saying that this is a no risk investment. Definitely, there will be risks involved. Risks include the performance of their underlying funds, how good they are in structuring their portfolio and also their backers to backstop those losses and provide the guarantee if the worst case situation happens.

    1. Hi ghchua Sir, how have you been? Trust all's good at your side. Good to see you dropping by again. Allow me to elaborate from my perspective. There is a lead time between the collection of funds from investors and the deployment of the funds into buying the underlying funds such as UOBAM United Fund etc. There maybe sudden announcement on downward revision of rates which will mean buying into funds at a more expensive fair value than they initially forecasted and consequently a lower return.

      You have also pointed out correctly the other scenario of interest rate increase which will lead to capital losses but do also bear in mind that this will depend on whether the underlying funds will actually hold most of their securities until expiry and then just collect the original forecasted interest income and capital which then in such a scenario, then there could also be no losses need to be borne by their shareholders. Nevertheless, I am sure you agree that either interest rate goes up or down, there will be risks involved. Hence I am troubled by all these new fund management entities which dare to "guarantee" interest rates in order to gain market share.

      Then I have some close friends who thinks that I am a weirdo and that the probability of the above-mentioned are virtually zero and the financial impact immaterial even if it happened and that I think too much. Most folks are happy with the offered product which guarantees their return for the 1st S$20K until 31 December 2024. But I will stick to my 3 points above which are inextricably intertwined and personally, I will not be putting my money with them. I am happy with my 3.5% to 4.0% non-guaranteed return from Endowus Cash Smart for my spare cash and will not be chasing after Chocolate Finance's guaranteed 4.2%.

      Last but not least, if you think that their shareholder backing and "guaranteed interest income" business model are good, then buy more lor. :) I am just sharing my personal views on why I will not go into Chocolate Finance.

  2. Hi Blade knight sir!
    Let's do the math: 4.2% until Dec 2024. Alternative: 6 mth T bill 3.7%
    Difference of 0.5%. on 20k = $100.
    Ain't even worth the time to think about this bro.

    1. Hi Damn, good one...haha. :) Smart and sharp of you to think in such a simple and concise manner. Yup, fully agree with you- the difference between a 6mths T-Bill 3.7% (which is definitely more transparent on the mechanics and easier to understand on the risk) and the 4.2% guaranteed return based on S$20K from Chocolate is very tiny indeed.