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Promissory Notes

Discussion in 'Financial Planning Study Group' started by Julieanne, 7th Jun, 2009.

  1. Julieanne

    Julieanne Member

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    Location:
    Melbourne, Vic
    Hi everyone,

    As part of the Pinnacle DFS there's an activity where you define investment products as either growth or defensive.

    One of the products is a promissory note and i thought it would be considered a defensive investment because from what i understand the return is fixed at the start..

    The correct answer is growth so can anyone please tell me why?!

    I thought maybe because promissory notes are not accepted or endorsed they might be considered more risky and are therefore not seen as a defensive asset..but if the return is defined from the start then it's not really a growth asset either....?

    Thanks

    Jules
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Jules,

    I seem to agree with you, a promissory note is a debt instrument so any growth is very limited (small potential with interest rates droppig but this is incidental to your question). Debts are usually seen as defensive assets, I am interested in knowing how Pinnacle see debt securities as a growth asset?

    Obviously a promissory note is much more risky than a term deposit but they are both liabilities.

    Don't get too worried about it as once you finish your course you won't care...

    Cheers,

    Dan

    PS Some more information is here Australian Securities and Investments Commission - IR 03-16 ASIC regulation of promissory notes
     
  3. Julieanne

    Julieanne Member

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    Melbourne, Vic
    Thanks Dan, for the answer and the link =)

    Turns out Pinnacle also considers it a defensive asset and they will fix up their material in the next edition.

    Cheers

    Jules
     
  4. Julieanne

    Julieanne Member

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    Melbourne, Vic
    or defensive liability... whatever =)
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Location:
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    Lol
    We know what you mean...

    Asset = Liability + Equity

    So both are right :)