“Capital Guaranteed” Guaranteed ? NO.

Capital Guaranteed Fund

The principal amount invested in the fund is guaranteed by a financial institution at the end of a three to five-year period. However, for investors who cash out before its maturity, they will NOT be entitled to capital guarantee. This means that even the capital guarantee unit trust is subject to investment losses if it is redeemed before the end of its maturity.

At the end of the 5-year period, if the derivative instrument beats the index, investors would enjoy higher returns. But the index is lower than the strike price of the option, the option will expire worthless, meaning to say, the investors would ONLY get back their ORIGINAL capital WITHOUT GAINS after 5 years of lock-in period.

Capital Protected Fund

This is almost similar to a capital guaranteed fund, except that the principal amount is not guaranteed. “Protected” doesn’t equates to “Guaranteed”. In the event the Net Asset Value of the fund is lower than the principal at maturity, investors suffer losses.

Some funds may pay a pre-determined rate of return during the tenure of the fund, while others attempt to “lock-in” some capital gain.

To sum it all up, Capital Guaranteed/Protected Funds have their own risk and potential losses. By investing in equity funds, although not guaranteed, they are potentially very much likely to outperform their counterparts. That is, expected rate of return of equity funds would be higher and are very much liquid (ability to convert to cash).

To find out more about how you could achieve your investment goals thru equity funds, feel free to ”leave a reply” with your contact information or text to Mr. Ng at 9790 8735 or MSN/email at zz63ei@hotmail.com 

~ by Ng Zhi Wei on December 5, 2007.