Are you aware that you can invest in warrants as an alternative to shares? What is a warrant? Is it risky?.
Essentially, when you invest in a warrant, you are making a “reservation” to buy a predetermined number of shares at a certain price in the future. A warrant is a derivative, which means that its value is derived from the underlying shares.
It provides a cheap way of investing in a listed company’s shares without having to pay the full amount. The downside is that it has a maturity period – usually up to 10 years – and is worthless if an investor holds it beyond the maturity date. It also does not give warrant holders any voting right, dividend and right to claim against the company’s assets.
When a warrant holder wants to “exercise” and the exercise price (inclusive of the cost of the warrant) is less than the market price of the underlying share, the warrant holder will make a profit.
However, if the exercise price is higher, the warrant holder will lose money. Examples of warrants are Khazanah’s basket warrrants, CIMB’s basket warrants, single stock warrants and OSK’s zero strike call warrants.