Capital Protected Funds

johntoil SG

Are 'protected funds' for investment not guaranteed?

I AM among the number of small investors here who have placed their money in unit trusts offered by local banks. We were told that upon maturity of our investments, our capital sum, at least, would be "protected".

We would never have expected the recent financial crisis in the United States to have such a serious impact upon our investments. On the news, it was stated that the effect of the crisis on Singapore banks was "insignificant".

One of my investments will be maturing next month, but I was told by a bank staff member that we would not get back all of our capital sum, which was placed with them as so-called "protected funds".

The amount we would be likely to get back could be 80 per cent or less than the capital sum.

In the bank's words, "protected" does not mean "guaranteed".

To laymen like me, it was certainly a bolt from the blue. If protected capital is not guaranteed, then the term "protected" is being misused for the purposes of luring those who are not well-versed in investing.

Perhaps the Monetary Authority of Singapore could help in ensuring that such financial terms are correctly used, so that ordinary people will not be misled into putting their hard-earned money into investments they do not know about.

In this case, shouldn't "protected funds" be called "non-guaranteed funds"?

Mr Soon Kim Hock

Each time my mother visits a bank to place her deposits, she would bring back brochures on funds promoted by bank salesmen. I call them salesmen because their only motivation is the commission. We would likely see them pitching another investment product in another bank in the next few months. Till today, my mother has listened to my advice and duly place all her savings in fixed deposits.

It is sad to hear pensioners or retirees losing their money in so-called capital protected notes or deposits.

Lehman Brother's bankruptcy serves a timely reminder for Banks that they have a social obligation not to leverage on depositors' key weakness - greed for better returns. A confidence trickster knows that man has 3 weaknesses - greed, lust and fear. Bank salesmen knows depositors are greedy for better returns. The magic word 'the product is low risk' gave them great assurances.

I would see many depositors seeking efforts to unwind these investments before their maturities.

The government must institute safeguards to protect depositors from these pushy salesmen. Please do not call these salemen as 'relationship managers' because their careers with the banks are usually short tenures.

alfagal SG

wat is e name of e exact fund?

capital protect and guaranteed is basically the same thing.

just tat for guaranteed, its certified by a third party.

some funds have payout during the tenor, and use the principal amt as part of the payout. could it be the same as yours? therefore during maturity your are getting back lesser than the principal, but actually the part of the principal was already paid out as dividend.

pigsticker SG

did you read the prospectus?? I'm guessing many people don't read it...

if you don't, you can only blame yourself...

that's why i don't like unit trusts... even those that are guaranteed most of the time only pay the guaranteed amount... I've seen someone wrote a letter to the fund house complaining about this when the fund matured.. it was quite funny, the guy was so damn sarcastic

rain_drop SG

i used to work in a bank and when the investment was not doing too well, and at the end of the investment on maturity date, customers get back

airgrinder SG

Are 'protected funds' for investment not guaranteed?

Hi TS.

My understanding (if i not wrong) there is a difference between capital protected, capital guaranteed, and sometimes principle protected funds.

Unit Trusts are NEVER "protected". Perhaps you are using it as a broad term to include structural deposits.

airgrinder SG

did you read the prospectus?? I'm guessing many people don't read it...

if you don't, you can only blame yourself...

Can't blame them. Most dun understand the prospectus, and not many understand the finance terms used, even in the marketing materials. Plus the sales staff are usually pushy, and they know what kind of clients to look out for.

kilua SG

i am against a "investors left to their own device" position.

"Why dont you read the propectus" is an elitist attitude typical of PAP that assumes Ah Mah can understand them.

You can see DBS and POSB peddling these structured products to retirees, who are ignorant of the risks.

More regulation should be enforced to ensure the risks and terms of the agreement are communicated in a understandable way, otherwise these products should not be sold to retail investors.

maxtor SG

Hi TS.

My understanding (if i not wrong) there is a difference between capital protected, capital guaranteed, and sometimes principle protected funds.

Unit Trusts are NEVER "protected". Perhaps you are using it as a broad term to include structural deposits.

Hi,

just want to clarify that there are actually capital protected funds around. There aren't many, but there are.

maxtor SG

just like to add my 2 cents to this. There have been some people adopting the caveat emptor ( let the buyer beware) principle, and asking how come some people don't read the prospectus first before committing their funds to the banks.

I have to disagree with this. Banks have traditionally been a symbol of trust and before the current financial crisis, the general notion is that they are safe. Even now, i would daresay that alot of us still trust that our local banks (DBS,UOB,POSB,OCBC) will not collapse. This might be true, it might not, but that is beside the point.

The point is that since they are a symbol of trust, alot of people trust that their banks will not swindle them. But people forget that banks, like every other business, are out to ultimately make a profit and add value to their shareholders. Therefore their job is to sell. Insurance products, unit trusts, structured deposits, structured notes ( think Lehmen's MiniBond Series) all come into the picture here.

Most, if not all of the above mentioned products, are not guaranteed by the bank. The Minibond series for example. DBS doesn't guarantee it! They are just using their extensive branch network to promote this particular product. But people think that since DBS is marketing it, it should be safe. The whole issue here again, is one of trust.

And for the people who suggested that it was the customer's fault for not reading the prospectus first, I would like to ask - How many people actually read a contract? Do you read your mobile phone contract? How about your hire-purchase contract? The fact is people don't like reading small-printed, lengthy and extensive jargon. Some of these contracts can go into over a hundred pages. I used to work in one of the banks as a relationship manager, and EVEN I didn't pore over every contract detail.

eagle SG

what I find interesting is that this particular christian old folk (64 yr old with a 94 yr old mum) also put money into this deposit. Feeling troubled, she flipped open the bible (or some christian book... not sure)

Then she told me she saw this line (which I forgot) which meant gold is like dung and silver is dunno like what, and the real wealth is wisdom...

Then she felt at peace with the money.

airgrinder SG

Then she told me she saw this line (which I forgot) which meant gold is like dung and silver is dunno like what, and the real wealth is wisdom...

Then she felt at peace with the money.

duh..... no offense but it's like duhh....

I guess in a way it's good. They may not get back the full sum, but at least, they dun let this unfortunate event upset them.

eagle SG

duh..... no offense but it's like duhh....

I guess in a way it's good. They may not get back the full sum, but at least, they dun let this unfortunate event upset them.

it's duh la...

but when faced with money loss at that age... most cannot help but get restless and agitated mah :D

bryanw SG

its could b their retirements funds, thus means alot to them.

maxtor SG

by the way, i thought TS's discrimination towards relationship managers/ bank salesmen, whatever u call them, was abit strong.

i do not deny that there are black sheep in the industry, but isn't there black sheep in other industries as well?

let me just ask this quick question. During the boom last year in october, who could have predicted Lehmen's failure? or AIG's? or Fortis? How about Bear Stearns? WaMu?

In this line, the average person who walks into a bank branch is a layman and not a savvy financier. It is very difficult, i would say almost impossible, to relay ALL information to the customer in one sitting, especially in complex structured products. More importantly, customers usually want to know what's in it for them (higher interest rates?) and length of investment.

Don't discriminate against relationship managers. Im sure there are black sheep out there, but i'm certain they don't belong to the majority. In fact, the best RMs (by salary) are usually the most honest.