Protected Fund
A protected fund is a type of mutual fund that promises to return at least some portion of the initial investment to an investor. If the investor sells the fund before the end of the guarantee period, then they must absorb any losses the fund posted and must pay any early redemption fees the fund charges. A protected fund is a type of mutual fund that promises to return at least some portion of the initial investment to an investor. The initial investment can only be paid back after the guarantee period is over; if the investor sells before this period, they are subject to any losses as well as possible fees for early redemption. The protected initial investment, plus some capital gain, will be returned as long as the investor holds the original investment until the end of the contractual term.
What Is a Protected Fund?
A protected fund is a type of mutual fund that promises to return at least some portion of the initial investment to an investor. The protected initial investment, plus some capital gain, will be returned as long as the investor holds the original investment until the end of the contractual term.
The idea behind this type of fund is that you will be exposed to market returns because the fund is able to invest in the stock market, but you will have the safety of the guaranteed principal.
How a Protected Fund Works
A protected fund often holds a mix of fixed-income and equity investments. The fixed-income portion of the portfolio partially guarantees the principal investment, while the equity portion seeks additional gain. The portfolio manager will often purchase an additional insurance policy to protect the principal, the cost of which is passed on to the investor.
The initial investment can only be paid back after the guarantee period is over; if the investor sells before this period, they are subject to any losses as well as possible fees for early redemption. This type of fund tends to have higher expense ratios than other types of mutual funds.
Examples of Protected Fund Construction
Zurich Life offers a line of three protected funds that can serve as an example of how these funds work:
You should consider the following before investing in a protected fund:
Related terms:
Blend Fund
A blend fund is a type of equity mutual fund that includes a mix of value and growth stocks. read more
Closed-End Fund
A closed-end fund raises capital for investment through a one-time sale of a limited number of shares, which may then be traded on the markets. read more
Funding Agreement
A funding agreement is a type of investment institutional investors may utilize for its low-risk, fixed-income characteristics. It's an agreement between two parties, offering the investor a return for a lump sum investment paid to the issuer. read more
Guaranteed Investment Fund (GIF)
A guaranteed investment fund allows a client to invest in an equity, bond or index fund with the promise of a predefined minimum value upon fund maturity. read more
Principal-Protected Note (PPN)
A principal protected note is a fixed-income security that guarantees a minimum return equal to the investor's initial investment. read more
Target-Date Fund
A target-date fund is a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. read more