Tisco fund pays if oil is up or down

Tisco Asset Management yesterday introduced the openended Tisco Oil Link Fund, a foreigninvestment fund that invests in structured notes with returns linked to Brent Crude Oil prices in Australian dollars. The fund matures in one year and 15 days. Its initial public offering runs from September 1826.

With the special feature of the structured note, investors gain the opportunity to make a profit both upside and downside as long as oil prices hover in the expected range. The range will be set by contractual parties or note issuers by linking to Brent Crude oil prices as well as the interest rates as of the commencement date of investment. As of August 29, the range was set at plus or minus 30 per cent of the Brent Crude prices of the first investment date.

Thus, if Brent Crude prices hover within this range, or if there is a change of 30 per cent or less in upward or downward movements, for the entire maturity of one year and 15 days, investors would get an additional return at the same rate as the Brent crude price movement.

But if Brent crude prices move beyond 30 per cent in either direction, investors would be paid their principal without any additional return. The principal will be paid in Australian dollars without hedging against foreigncurrency risk. This exposes investors to foreignexchange risk.

However, according to Tisco Asset Management, the Australian dollar has so far been marked with relatively low volatility compared to other currencies. If the baht depreciates against the Aussie dollar, investors would profit from forex gains.

Tisco Asset Management said similar funds launched by other firms would give investors a return only when oil prices moved up.