Guaranteed Funds: What are they and how they work
In an economic context of great uncertainty, inflation, and low-interest rates, guaranteed investment funds can be a good option for investors who want to diversify their savings and, at the same time, ensure a certain return on their investment.
As the name implies, guaranteed funds guarantee all or part of the capital invested, as well as a predetermined return over a period of time. This profitability is generally referenced to the evolution of a stock market index, such as Ibex-35, and will depend on certain previously established circumstances being met.
Therefore, it should be borne in mind that with the funds offered by Spanish banks, guaranteed returns are not always assured. The Comisión Nacional del Mercado de Valores (CNMV) defines these products as funds that ensure that, at least at a certain future date, all or part of the initial investment will be preserved, and in some cases, they may also offer a certain guaranteed return.
Because of the low risk involved, these funds usually provide a low return and are intended for investors who do not want to worry about their money or investments, but are nevertheless a good alternative to fixed-term deposits.
Types of guaranteed investment funds
There are three different categories of guaranteed investment funds, depending on whether they guarantee the totality of the initial investment. Guaranteed fixed-income funds promise investors, as of the maturity date, the recovery of the initial capital and also a predetermined fixed return. These funds are particularly suited to investors with an investment horizon of between six months and three years, who value a high degree of stability for their investments at the expense of performance.
Guaranteed equity funds, on the other hand, only secure the initial investment as of the maturity date. In addition, they offer the possibility of returns linked to the performance of various financial assets or indexes. However, the investor has to bear in mind that if the performance is not as expected, the return may be zero.
There is a third category, partial guarantee funds, which, unlike the previous two, do not insure the entire initial investment, but a percentage, usually 90%. This higher risk is compensated by the possibility of a higher return on maturity, also linked to the evolution of equity instruments, currencies, or other assets.
Low-interest rates have popularised guaranteed equity or partial equity funds, which offer a good balance between security and profitability compared to more conservative funds, such as fixed-income funds, which are very safe but also offer very low profitability. But as always, before making an investment it is vital to assess the risk we are willing to take and to clearly define our investment objectives.
The question, therefore, is: is there any fund that generates high returns and guarantees 100% of the investment and returns?
If you want to know more about superior options to make your money profitable, go to Guaranteed Funds. From 11Onze Recomana we propose you the best options in the market.
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