Wednesday, January 5, 2011

Protected Fund

A protected fund (or sometimes referred to as a capital protected fund) is a fund which promises to limit its losses to a certain amount within a certain period e.g. 10% over the course of a year. Funds like this may be structured with derivatives like options and swaps. A simple version of a capital protected fund would be to take the value of the capital protected amount, calculate it's present value, invest the present value in a 1-year government security, then use the surplus for relatively high risk investments, with the capital protected amount being returned at the maturity of the government bond. Protected investments may appeal to certain types of investors, particularly those that are strongly risk averse. Investors need to carefully calculate all the direct and indirect charges of these types of investments when determining the costs and benefits.

Synonyms: Capital guaranteed fund, Capital protected fund

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