INVESTORS seeking to diversify their investment portfolio and higher returns than deposit rates should consider investing in capital guaranteed funds, said Citibank Bhd investment and insurance director Charles Sik.
With the current low interest rate regime, coupled with the improving equity market regionally and globally, a capital guaranteed fund was one of the best alternative investments for fixed deposit investors as it was less risky than bond or equity funds, he said.
The US (federal fund) rate, in less than three years, has dropped from 6.5% to 1%. During the same period, deposit rates in Hong Kong have come down from 5% to close to zero and in Singapore itself, deposit rates has dropped by 80% from 2.5% to 0.5%.
On the local front, interest rate spreads (difference between deposit rates and bank lending rates) have also been narrowing. The 12-month deposit rates have remained relatively stable over the past two years at between 3.7% and 4.2%, compared to other markets. Judging from that trend, it is unlikely that interest rates will move up in the short term,'' Sik said during an interview with StarBiz.
People could have the opportunity to participate in the equity market and at the same time had their capital protected by investing in capital guaranteed fund, he said.
Citibank, in collaboration with OSK-UOB Unit Trust Management Bhd, recently launched the OSK-UOB Capital Guaranteed Fund Series 1.
About 85% of the fund is invested in fixed income instruments and the balance in equities.
The product guarantees an investor 100% of their capital regardless of the market conditions when the fund matures at the end of five years.
A minimum investment of RM20,000 is needed to participate in the fund.
Unlike other similar funds in the market, Sik said this new fund had no front-end sales fee, thus enabling the fund manager to invest every ringgit raised from the fund into financial instruments.