The guaranteed investment funds, as their own name indicates, guarantee that, at a certain future date, the capital invested will be retained totally or partially. In addition, in some cases, a certain guaranteed return is also offered.
- Guarantee maturity date: future date in which it is ensured that the fund’s shares reach a certain net asset value (guaranteed net asset value). Only the participants who maintain their investment until the expiration date are entitled to the guarantee. If it is reimbursed before this date, there could be losses
- Guarantor: an entity that assumes the commitment to provide the necessary amount for the participant to keep their initial investment, in case the evolution of the portfolio of the guaranteed investment fund has not allowed reaching the guaranteed liquidation value. When this amount is delivered directly to the fund, it is referred to as an internal guarantee; if it is the participant who receives the amount, the guarantee is external.
- Marketing period: the period during which you can buy shares of a guaranteed fund without paying subscription fees.
- Liquidity windows: some guaranteed establish predetermined dates, in which the participant can reimburse totally or partially without paying reimbursement commission. For this, it is necessary to respect the notice periods included in the brochure. Since these reimbursements are made at the liquidation value of the date, the guarantee is not applicable and may generate losses.
Types of guaranteed investment funds
Depending on the scope of the guarantee, two types can be distinguished:
- Guaranteed fixed yield: on the expiration date of the guarantee, they not only ensure the conservation of the initial capital, but also a fixed and predetermined return (indicated in the prospectus in terms of annual interest, APR).
- Guaranteed variable returns: they only ensure the initial investment, on the expiration date of the guarantee. They also offer the possibility of obtaining a return linked to the behavior of various financial assets or indices (according to more or less complex calculation formulas). The investor should bear in mind that, if the evolution of the underlying instruments is not as expected, it is possible that he will not obtain any return.
What to do when the warranty expires
The participant must be aware of the expiration date of the guarantee (indicated in the fund’s prospectus and in the periodic information sent to him) since at that moment he must assess the situation and decide what is best for him to do.
In some cases, once the guarantee expires, these products establish or initiate a new guaranteed period that includes significant changes in their nature and characteristics. In other cases, the fund may cease to be guaranteed and continue to function normally, with another investment policy.
And finally, it is also possible that the fund, once its guarantee expires, is absorbed, through a merger process by another fund.
Investors have the following options :
- Not accept the new conditions: in such case, the participant must exercise the right of separation, which allows him to recover his investment or transfer it to another fund without supporting reimbursement commissions for a limited period (one month, at least). This period is indicated in the letter sent by the entity.
- Stay as a participant in the fund : this option does not require any action, since if the investor does not order the refund during the term available to be separated, it is understood that it is in accordance with the new characteristics (or, if applicable, the characteristics of the fund) absorbent) and you want to maintain your investment. From that moment the participant is subject to the new conditions (among which the application of commission for reimbursement, for example) may be included.
To take into account this type of funds
- In general, the guaranteed funds do not guarantee the investment at all times, but only at a certain date: the expiration date of the guarantee.
- Not all of them assure the obtaining of yields. Before investing, check whether the guaranteed investment fund offers a fixed and secure return or only guarantees the initial investment.
- If you decide to invest in a guaranteed fund, it is advisable that you invest during the marketing period, and if you wish to repay, do so within the period foreseen after the expiration of the guarantee, or taking advantage of the moments without refund commission (windows of liquidity) throughout the life of the product.
- The guaranteed funds usually charge high fees for making subscriptions and refunds during the guarantee period, in order to restrict the entry and exit of participants (except in the liquidity windows).
- Refunds made in a liquidity window do not benefit from the guarantee. Although they are exempt from a reimbursement commission, they can result in losses.
- Do not forget to consult the information brochure of the product to know the period of commercialization, expiration date of the guarantee, profitability objective, commissions, liquidity window, pre-warnings, etc. It is important to consult both before making the investment and once you have the status of the participant.
- It is important to carefully review the communications sent by the entity about the expiration and conditions of renewal of the guarantee.