Traditional Capital Secure Funds
Capital Secure Funds are generally fixed duration funds, for example 5 years, with the promise of a return of capital or the return of a set minimum amount of capital, for example 95%, at the end of the investment term. There is usually a bank underwriting the capital guarantee and the fund will track the performance of a stated Index. These funds are at the low risk end of the spectrum as they offer a high degree of capital security but the trade off for the high level of capital security is that investment returns can be quite modest. Capital Secure Funds should really be seen in the context of being an alternative for deposits. For example, when prevailing interest rates are very poor capital protected funds give investors some chance of beating prevailing interest rates. However, if prevailing interest rates are very good the modest returns on capital secure funds, allied to the fact that investors must commit to a 5-year term, may not seem as appealing.