Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Investments, Trading, and Financial Markets

Protected Fund - Explained

What is a Protected Fund?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Protected Fund?How Does a Protected Fund Work? What You Need to Know Before Investing in Protected Fund

What is a Protected Fund?

A protected fund refers to a type of mutual fund that guarantees investors a portion of their initial investment. The protected fund allows the shareholders to make a return from their investment in the stock market while guaranteeing their money. The protected initial investment and some return on capital are given back to the investors as long as they hold their initial investment to the end of the term. 

Back to:INVESTMENTS & TRADING

How Does a Protected Fund Work? 

The protected fund is a good option for those investors who are okay with lower risk levels. Funds are actively managed, and they offer investors the potential to earn returns from the investment while limiting their exposure to risk. There are various protected funds available to suit the needs of every investor. Investors are free to invest in one or more funds to match their personal risk profile. To protect the fund, there is a holding of a mix of equity investments and fixed income. A portion of fixed-income is used to partially guarantee the initial investment, while part of equity investment is for additional gain. To protect the principal investment, the portfolio manager buys an additional insurance policy and passes the costs to investors. For the initial investment to be paid back to investors, the guarantee period must first come to an end. For those investors who sell them before the end of the contractual term, they are subject to losses. They also charged some fee for early redemption. Compared to other types of mutual funds, protected funds expense ratios happen to be higher.

What You Need to Know Before Investing in Protected Fund

  • You need to find out whether you will need money in the next 5 or 10 years. Early liquidation means that you are likely to pay an early withdrawal penalty and lose your principal guarantee. Also, you may lose some amount of money on your initial investment in case of market downward movement.
  • Ask yourself if you will be in need of income from the investment. Remember, the guarantee applies only to those who do not take redemptions until the guaranteeing period, and reinvesting all of their distributions and dividends.
  • You must pay U.S. income tax unless held in a tax-deferred retirement account
  • You are entitled to benefits of the guarantee only on the contractual maturity date
protected fund

Was this article helpful?

Yes
No

Related Articles

  • Risk Adjusted Discount Rate - Explained
  • Backing Away (Securities Market) - Explained
  • Carried Interest (Finance) - Explained
  • Piotroski Score - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand