A new study suggests that 300,000 SSIA investors could receive better- than-expected returns as long as early losses arerecovered at a later stage

Up to 300,000 investors who took out an equity-based Special Savings Incentive Account (SSIA) before the April deadline would probably like to forget the past few months. Stock market falls have wiped out significant chunks of the projected returns and cancelled out much of the Government's contribution of €1 for every €4 saved. Investors in the deposit SSIAs could be forgiven for feeling a little smug.

But a study, published yesterday by Dublin-based actuarial consultants Life Strategies, reassures SSIA equity investors that, presuming early losses are made up for at a later stage, they will receive better-than-expected returns. "Our analysis suggests that the situation is not as bleak as some recent reports suggested and, in fact, there may be some good news for these investors," says Mr Dermot Corry, a director of Life Strategies.

Most equity-based SSIA products were sold based on a standard industry projected investment return of 6 per cent per annum before charges.

"We cannot say whether this 6 per cent will be achieved but, if it is, then it is far better to take a hit at the start of the investment than at the end," says Mr Corry. "Indeed, if a 6 per cent return is achieved over the full life of the investment, then the investor could do better than originally projected. This is because the investor would have a greater amount of money invested at a time when the largest increase in equities occurs."

Life Strategies uses the example of an investor who started an equity-based SSIA on April 1st of this year, paying €200 a month into the account throughout the five-year investment term. The investor could expect a value of €16,321 at the end of the five years, based on a projected return of 6 per cent per annum.

However, the actual returns over recent months have been nowhere near this level. Typical equity investment funds have taken a plunge, falling 14.4 per cent over the five months to August. "This would appear to put SSIA equity investors in some difficulty but our analysis suggests that they should not despair," says Mr Corry.

Life Strategies has put forward two scenarios. The first looks at the projected value of an SSIA fund, based on a 6 per cent return from now on and carrying forward losses already made. In this situation, the investor would see a value of €16,176 after five years, compared with the original projected value of €16,321. This would result in a loss of just 1 per cent on the original projected returns - a relatively small amount given the traumatic movements in the markets over the past five months, according to Mr Corry.

It is the second scenario that will give optimistic SSIA investors a warm feeling inside. The consultants have considered the projected value after five years assuming that the overall 6 per cent return will be achieved over the full life of the investment. The investor would then receive €17,875 after five years or 9.4 per cent more than the original projections.

This is "quite a substantial increase", according to the study, and shows the benefit that can be gained by investing at the times when returns are low. Investors in this second scenario would stand to gain more than if equity markets had risen gradually to record an overall return of 6 per cent.

But to recover ground lost to date, a return of about 10 per cent per annum would be required over the remaining four years, seven months. This may not be achievable. "It's an if, it's a hypothesis," explains Mr Jim Murphy, another director of Life Strategies.

"People have looked at how markets have gone and said that it's bad news for investors," says Mr Murphy. "I'm not saying that it isn't; it's always nice to have it in the bank. But sometimes people are better off going the scenic route."

So if you're an investor in an equity-based SSIA, the message is don't be afraid if your returns are taking a little detour and, above all, don't panic.

"Customers knew they were choosing the riskier option when they bought the equity SSIA," notes Mr Murphy.

As long as the markets start on an upward slope soon, the potential benefits could be greater than the impact of losses to date, according to Life Strategies. "What appears to be bad news on the face of it, may ultimately be good news for the SSIA equity investor," concludes Mr Corry.