Re: "guaranteed return" funds in a self select ISA

Hi,

Most 'guaranteed return' or 'protected' funds tend to be quite complicated, and the nature of the guarantee or protection can really vary from fund to fund. Most only 'guarantee' your capital upon certain conditions - i.e. the index has reached a certain threshold in x years time. They often have specific lock in periods.

It is quite difficult in most cases to work out whether these actually do provide good value or not. I'm never really managed to work it out.

I find the best of these type of funds (or maybe I should say the least convoluted) are the Escalator funds provided by Close Fund Management. These have 'lock-in' dates each quarter where you can opt to 'lock-in' previous gains, or else roll them over. Unfortunately, these are not available via an ISA.

As the last poster stated, if you don't wish to take risks, then a bond fund is the most suitable option after cash.

The problem you will find is that most of these 'guaranteed' or 'protected' funds do partly invest in equities, either directly, or more probably indirectly (via the use of options and other derivatives), with the capital security provided by an instrument such as a Medium Term Note.

There is a list of available Protected funds at:

In my opinion, if you don't want to take risks associated with equities, then don't invest in equities. While these funds may prevent you losing some capital, should the market rocket up, you will only get a proportion of the gains that you would have received than if you were directly invested in equities - because part of your capital if being used to provide the layer of 'protection'.

As you may have guessed, I'm no real fan of this type of fund.

Given that there could be more nasties on the markets over the next few months, Cash does not seem a particularly bad place to be right now.

Rgds

Neil

------ Financial Calculators & Tools

Virgils Ghost wrote:

Sorry,

It was an error to state above that the Close Escalator funds are not available via an ISA.

Some are not available via their own ISA wrapper, but all should be available via a decent self-select ISA.

Rgds Neil.

snipped-for-privacy@> Hi,

You can always put the money into gilts with a maturity 5 years hence.

In message , Terry Harper writes

But with the exception of Treasury 4.25 2011 all the 5 yearish bonds are trading over par meaning you are guaranteed a capital loss. This will be offset somewhat by the running yield of 7.54% (which would be subject to tax). The redemption yield (i.e. total return) is 4.68 (gross) but you would be taxed on 7.54% per annum despite only getting 4.68 effective..

Bitstring , from the wonderful person John Boyle said

Not in an ISA it wouldn't.

In message , GSV Three Minds in a Can writes

Thats correct. I had forgotten that the OP was talking about an ISA! Sorry!

So don't buy the stock standing at a premium over par.

If interest rates rise, all of them will lose some capital value in any case in the short term.

In message , Terry Harper writes

Quite, but why did you say 'you can "always" buy gilts'?

Because you can "always buy gilts" inside a share ISA. It's just that they have to have at least 5 years to go to maturity.

If you think that interest rates are going to fall in the short term, you may be able to get away with a high coupon stock and not lose capital in the short term.

The interest received is usually better than for cash in a share ISA.