Guaranteed funds are not for everyone, and their current popularity is linked to investor behavior rather than long-term investment needs. At times of market downturns, retail investors typically shun investment in equities for fear that any recent market decline may be perpetuated. No investor with a genuine investment horizon of more than three years should allocate anything but a small portion of assets into a guaranteed fund. It is highly improbable that any guaranteed fund will generate the same level of return as a fully invested equity fund over the longer period. The basis of comparison of returns for a guaranteed fund is a deposit rate, not the return on a stock market.
Expenses are crucial.
In a fund that holds zero-coupon bonds and warrants, there is no income to the fund over its life. This may not be true for two reasons. Second, if the client is making an investment into a front-end load fund, they have the opportunity to request a discount on the entry fee from their investor adviser. With a back-end load product, no such opportunity exists. Guaranteed funds have their place, but they are not the answer to long-term wealth creation.