3 Reasons I Will Avoid Capital Protected Funds

There no such thing as low risk but high return investments!! Except scams!

I bought this capital protected fund investing in commodities at the height of the 2008 bear market. I bought it because, i expected that the commodities will eventually rise with the recovery and also gold aka precious metal will rise as the dollar loses its value because of the quantitative easing by the FEDs. 

Below is the performance of my fund that I bought. I thought it will at least yield me 5% annualized returns. (Heck even my govt SUKUK yielded me 5% and no service charge!!) Commodities aka precious metals, palm oil were on the rise!! Heck this year alone, gold has risen like 20-30%!! And yet i still get fixed deposit returns.

3 Reasons why I will avoid capital protected fund in the future are:

1. I am bounded to stay vested in the fund for 3 long years!! If i withdraw or sell prematurely, i will get penalized around ~1% if i am not mistaken for the 1st year, and lesser amount as we reach the 3yr maturity. ~1% is alot considering that it only yielded 3% returns per year.

2. When the market recovers, this fund did not managed to capture the rise and hence the dismal performance. The main reason is that to do a capital protected fund, ~90-95% of the fund is invested in zero coupon bonds. (something like very low yielding fixed deposit. This is designed to protect the erosion of the value of money due to inflation. More detail from Wikipedia: A zero-coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.^[1]). So only the remaining ~5% is used to invest in commodities.  That is why the fund cannot performed good enough compared to equity type funds.

3. There is a 3.5% service fee when i buy into the fund. Ouch..with this low return, it really ate into my returns. I better put my money into fixed deposit or sukuk funds by the government. I expect more sukuk issuance as the economic condition worsens. Remember that government is too dependent on income taxes as a source of income. (around 41%). Lower wages, or higher unemployment will hurt their revenue.

P.S I am recalling the figures above by memory. (This was 3 years ago!!) But I think i am right to a certain extent. 

So my learning for 2011 is to AVOID Capital Protected Fund types NO MATTER what exciting sector it invests in. I will tell you next time what are the types that I like and will buy in the coming future when the market tanks. I was a mistake on my part even ( I think i could not find any pure commodity funds at that time) though I picked the correct sectorial play that is commodities.

Good thing is that the fund has matured, and I will withdraw my money from this under-performing fund (at least to my expectation) soon this month :)

Performance History

2011-09-30

Growth of $10,000 (MYR)

•  Fund
• -
• 11.01
• -0.04
• 0.40

•  +/-Cat
• -
• 1.60
• 11.42
• 0.45

•  +/-Idx
• -
• -
• -
• -

Category: Capital Protected

Index:

• Trailing Returns(%)
• 2011-10-07

• YTD Return
• 0.12

• 1 Year
• 3.35

• 3 Years Annualised
• 3.14

• 5 Years Annualised
• -

Benchmarks

Fund Benchmark

Maybank 12-month Fixed Deposit Rate

Morningstar Benchmark

Key Stats

• Morningstar Qualitative Rating™
• 

• Morningstar Category
• Morningstar Rating™
  

• Capital Protected
• 

• GIFS

• -

• ISIN
• Inception Date

• -
• 2008-09-02

• NAV(2011-10-07)
• Day Change

• MYR 1.03
• 0.18%

• Bid Price
• Offer Price

• -
• -

• Total Net Assets (Mil)
  (2011-09-30)
• Total Expense Ratio
  (2010-10-31)

• USD 4.86
• 0.18 %

• Front Load Fee(Max)
• Redemption Fee

• 3.50 %
• 1.50 %

• Employee Provident Fund

• No

loading..

Share |