Q&A:Q My wife and myself invested €4,000 in the EBS Secure Investment 7 in November 2003 for a period of five years and six months and it matured on June 1st, 2009.

The return after an annual charge of 0.85 per cent and an annual management charge of 1.4 per cent is €553.33. Surely this cannot be correct as the return on April 20th, 2006 was the same as now three years later.

The stock market did not start falling until 2007 and I would have thought that the funds would then have been transferred to cash and invested in a high interest account. Could I please have your thoughts on this?

Mr P.M., Dublin

A I know that it is of little consequence now but five years and six months is in fact a very short timeframe for a capital guaranteed product, such as EBS’s Secure Investment series.

The nature of these types of investment is that the bulk of your money ends up sitting on deposit in order to deliver the capital guarantee. The shorter the investment term, the higher the portion of your fund that remains on deposit rather than being invested in the market.

Given the stock market collapse between February 2007 and February 2009, I would not be surprised if the outcome in June 2009 was the same as it would have been in April 2006.

In fact, I’d be pleasantly surprised. Should these funds have been more nimble in moving their investments into cash?

With the benefit of hindsight, the answer clearly is yes.

Of course, the performance of fund managers over the past couple of years shows us that few considered the downturn was going to be quite as drastic as it was or were in a position to liquidate their stock market holdings – much of which are probably held through derivative products.

Ironically, given the impact of charges and the collapse of the stock market which has eaten into your limited stock market exposure, you are probably earning less on your investment than would have been the case had you placed it in the most competitive deposit accounts over the same period. Your money is certainly worth less now than it was when you first invested.

You say you have received a return of €553.33 on your €4,000 initial capital sum. Over that five year and six month period, your €4,000 would have had to yield a gain of more than €800 simply to keep pace with the consumer price index between November 2003 and June 2009.

I am aware that the currently shell-shocked market investor now has appetite for little other than some form of capital guaranteed product but it remains the case that capital guarantees carry a very high price and are designed for risk-averse investors.

The question, ultimately, is whether people who are that averse to risk should be looking at stock market investment in any shape or whether they would be better looking at bank deposits or fixed income products, such as Government or blue-chip corporate bonds.

CGT get-out clause could be silver lining

Q When does the demise of a company entitle a shareholder to claim a loss for CGT purposes? For example, can a holder of Waterford Glass shares claim a total write off on his holding for CGT in 2009? Also Newcourt has recently gone into receivership? Can a holder of these shares now claim a total write off for CGT in 2009?

Mr D. McC., Dublin

A When a company goes into receivership, the rights of existing shareholders are effectively void.

There are some cases – such as the nationalisation of Anglo Irish Bank where the Government has established a procedure to assess the “fair” value of the shares at that time – where shares in a collapsed company can retain some limited value.

Looking at the two companies to which you refer, Waterford Glass’s parent company, the formerly listed Waterford Wedgwood group, has collapsed into receivership.

The receiver of the Irish operation found a buyer for those parts of the operation that had potential in the eyes of the market. At that point, the rights of shareholders were extinguished and I see no reason why you should not be able to claim any loss arising on the capital gains side this year.

In relation to Newcourt, that receivership process is ongoing. While some parts of the group are subject to management buyout or acquisition, the process has not yet reached a conclusion.

The Revenue points to Section 538 of the Taxes Consolidation Act 1997.

That Act says that where someone claims an asset – such as shares – have become of neglible value “and the facts support the claim”, then the asset is deemed to have been disposed of at that “negligible value”.

This scenario applies, Revenue says, where the circumstances indicate that the loss in value is likely to be permanent.

Where a shareholding loses its value due to receivership or liquidation, and there is little or no prospect of recovery in value, then the rule applies.

The situation in companies that are subject to the examinership process is different.

A company in examinership is deemed to have some chance of survival although there is generally a requirement for a significant restructuring – including possibly a restructuring of the ownership position of existing shareholders.

Where such a restructuring means that a shareholder has suffered a loss on their investment, that loss should be claimable against capital gains tax in the year in which it arises.

To buy BoI or not to buy

Q I was thinking of investing in Bank of Ireland shares. In your opinion, will the banks be nationalised and do you think it is a good idea?

Mr P.C., email

A Investing in any of the banks at the moment is as much an exercise in faith as in market judgment. It is telling that market players say institutional investors are staying on the sidelines at the moment and have been for some time. These are the investors who generally drive the market in shares such as Bank of Ireland.

Do I think Bank of Ireland will be nationalised?

I think it’s possible but it is quite clear that the Government has decided it will support the banks in whatever way necessary to ensure it does not have to take Bank of Ireland or AIB into full state ownership.

That makes it very much less likely. Does that make the stock a sensible bet at the moment? I’m simply not qualified to say.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.