Advantages and disadvantages of Investing in DPPs : NobleTrading Blog

Friday, August 14, 2009

Advantages and disadvantages of Investing in DPPs

Direct Participation programs or DDPs are attractive investing instruments. Moreover, many of these programs have attractive marketing methods, which can drive people to them. Here are some advantages and disadvantages of investing in DPPs.

Advantages of Investing in DPPs

DPPs offer good tax benefits
They are good instruments for long-term passive investment and thus are ideal for investors with low investing knowledge
DPPs let investors invest their money in projects with high potentials, like oil exploration, wind/sun energy harvesting, movie production, and real-estate investment trusts (REITs)
They can offer steady/high returns
They are most suitable for persons with good income and savings and wish to reduce their tax burden.

Disadvantages of Investing in DPPs

They are risky investments, investors can lose as much as all the amount they invested
They are illiquid instruments, transfer of units are usually restricted by contract. Although some are traded over the counter (OTCBB), they have low trading volume and high price fluctuation, resulting in wide ask and bid spreads
They are not suitable for investors who invest for their living
At present these carry much less tax benefits than in the past
Some DDPs may need additional investments in future to meet the higher needs