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managed fund gearing ratio

Discussion in 'Managed Funds & Index Funds' started by dreamland, 14th Oct, 2005.

  1. dreamland

    dreamland Member

    13th Sep, 2005

    After a few hiccups with margin lending, I have finally transferred my existing
    securities to BT, and by next week, I will have additional units in the fund via margin lending.

    There is however one thing I don't understand.

    I have requested 50% lending ratio and on market value of $58K I can borrow $82K
    I thought 50% meant another $58K.

    I have on my statment a loan limit that Bt have put down as $41116.
    Not sure where they got this from.

    Any help would be appreciated as this is all new to me.

  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    That figure would be the amount of cash you can draw out of your LOC.

    If you purchased more units in a fund using some of that LOC, those funds would also be assigned a margin value which would increase that loan limit, and hence you could potentially purhcase a LOT more than $41116 worth of funds or shares.

    If you have $58K of your own funds in there, and you borrow another $58K to buy more units, your LVR is 50%, and if those funds (like Navra) give a 70% margin value, your $116K of funds now have a margin value of $81.2K, you've borrowed $58K, so you still have $81.2K - $58K = $23.2K available in your LOC.

    I know it's a bit confusing, but it is logical. I don't bother to look at that figure about how much I've got available, I just focus on the LVR ... if I keep my LVR around 50% or only slightly higher, I know I can continually just buy more and more units (assuming they are assigning a 70% margin value like they do for Navra).

    Basically, for every $5,000 of cash you transfer to your margin account, you can purchase $10,000 worth of units in the fund (at 50% LVR).
  3. dreamland

    dreamland Member

    13th Sep, 2005
    HI Sim,

    Thanks for the prompt reply.

    It is a nice surprise that I can get $80K margin lending , instead of the original $60K that I thought at 50% lend.

    I still don't quite understand how it works, but as long as I am at 50% I am happy.

    Thanks Sim