Capital Guarantee Bonds
Many investment bonds offer a level of capital security, which may satisfy investors who have a low investment risk profile. Guaranteed Investment bonds have a set investment strategy, which will see a portion of the investors capital invested in fixed interest securities / deposits and the remainder in a tradable market asset, security or derivative.
When assessing the growth potential of capital guaranteed bonds, the greater the bond’s exposure to growth securities / assets (known as the participation rate), the greater the potential for gains. Also, the chosen indices or stocks should have good growth potential.
Before investing it might be advisable to consider the following:
The meaning of the word ‘Guarantee‘. For example, some companies make it clear from the start that there is no Guarantee in the event that they should fail.
Life of a Bond
Typically from around 4 to 6 years. Unlike a direct investment in a Stock Market there is no freedom to cash in your investment early , so as to realise your gain if you think the Market will fall
Minimum return guaranteed
This can be calculated in a number of ways:
Using the index value at a particular date. Averaging the index over a period of months or even a year. In a rising market over the last year this reduces the return for that year but may smooth out a short term fall in the Index at the end date. Applying a ratchet that locks in any rise in the market, even if the index falls thereafter