The features of Capital Protected Funds
Tuesday, May 8th, 2012A Capital Protected Fund is a type of mutual fund usually deemed as a cautious investment, because it guarantees the investor the initial capital, or at least it tries to. Although it is generally acknowledge that any financial investment carries a lesser or greater level of risk, people still search for guaranteed returns and don’t enjoy taking too many risks when it comes to their money, which is why more and more investors have turned from equity to these capital protected funds. Richard Cayne Meyer International talks about how very easy it is to invest in capital protected funds and how suitable they are for clients who wish to make their investments for a medium, fixed term, which is set to around 5 years. These funds have a potential for growth, which is directly connected to the stock market, yet their managers are using certain strategies to try and protect your original capital investment, even if the market records negative results.
According to Richard Cayne of Meyer International, what MF advisers do is conduct thorough research and based on their expertise, experience and knowledge of the market, will invest the money into companies that are most likely to grow in the future, which is to increase in value. But the main difference between usual equity and capital protected funds is that not all the capital is invested, but only a small percentage of it. For example, if you invest $1 000, the manager of your fund will only take about $200 and put it into equity, while leaving the rest of $800 in debt. Since the capital protected funds have a usual term of 5 years, the $800 have more than enough time to grow into the initial one thousand dollars, so even if the $200 invested in equity is lost, you still have your initial capital. However, Richard Cayne Meyer Asset Management Ltd points out that, if the $200 that went into equity generate returns, then you will be able to enjoy a growth from your fund.
There are many things to considered when deciding whether to use a capital protected fund or not. Richard Cayne Meyer International also highlights that, though the level of risk is far lower in regard to this type if funds, the return are consequently not as high as they would be from equity. Taking into account a medium 25 to 30 per cent returns over one year in the case of equity, the percentage for capital protected funds will be more in the range of 13. therefore, capital safety has its costs, which makes investing in this kind of funds an issue of personal preference. They are definitely safer than equity and generate return that maybe not be as high as in equity, but are better than in debt funds, for example.
All things considered, capital protected funds are very suitable for clients who are not seeking for very high returns and just want a certain guarantee over their investment, together with the ability of making additional investments along the way and the potential of growth that is linked to the stock market.
Richard Cayne is also Managing Director at Meyer International Ltd based in Bangkok, Thailand and like Meyer Asset Management Ltd is also part of Asia Wealth group Holdings a PLUS Stock Exchange listed company in London UK.