A good bet for low-risk investors
For volatile times a good bet is a mutual fund that generates decent returns under a capital-protected policy.
One such is the flexible Capital Protected Complex Return Fund. It mainly invests in fixed-income instruments intended to protect the investment principal, such as local or foreign government bonds, promissory notes or certificates of deposit, deposits in commercial banks or certificates of deposit issued by commercial banks, and other low-risk assets. The remaining investment is put into derivatives, whose returns are based on the changing price of underlying assets with different conditions as specified in the fund. Returns risk will therefore loom if the price movement of underlying assets differs from the fund’s conditions, while investment capital is guaranteed under the fund’s capital-protected policy.
The Securities and Exchange Commission of Thailand (SEC) has defined that the type of derivatives for mutual funds must have one or more products or variables belonging to securities (stocks), securities index (SET 50 Index or SET 100 Index), interest rates, foreign exchange rates, credit ratings, credit events, gold, oil, or commodity indexes.
Suppose such a fund invests 97 per cent of its net asset value (NAV) in government bonds. The remaining investment (3 per cent of NAV) is then invested in derivatives, called options, whose returns are based on the changing prices of three stocks: Stock A, Stock B and Stock C. Suppose further that the fund’s condition is to repay returns on investment on the one-year fund maturity date at 7 per cent if the closing price of all three stocks at that date reaches at least the closing price on the date of investment. Otherwise, investors will receive only their investment capital without any returns.
Thus, this fund is suitable for low-risk investors who seek an investment under a capital-protected policy. They stand a chance of getting better returns than bank deposits from other assets, bound by the options.
Investment contains risk; please carefully study the fund prospectus before making your investment decision.
Investment Products Strategy group, Asset Plus Fund Management.
