Capital Guaranteed Fund III

Previous posts on Capital Guaranteed Fund:
Capital Guaranteed Fund I
Capital Guaranteed Fund II

Everybody aware of inflation. Due to this animal, $100 we have after a year (FUTURE VALUE) will not allowed you to purchase a same amount product which is quoted in today price (PRESENT VALUE). Giving 5% inflation rate per annum, your $100 of FUTURE VALUE (after a year) will only allowed you buy a product which is quoted today at $86.38 (PRESENT VALUE). Thus, after a 3 years maturity period, RM 300 million of FUTURE VALUE is equivalent to RM 259.15 million of PRESENT VALUE!! With capital guaranteed capped at RM 300 million (FUTURE VALUE) after 3 years, it’s for sure fund could deliver their capital guaranteed even their investment result is poor. They are left with RM 13.21 million (RM 272.36 million – RM 259.15 million) to play around even their investment result delivered no result at all for the entire 3 years period! That’s a “SURE CAPITAL GUARANTEED, ZERO RISK” Investment!!

The calculation above is simplified to an illustration purpose. The assumption made is there is no return (0%) for entire 3 years period.



When fund tagged with “Capital Guaranteed”, it should at least preserve its fund holders’ value. This means that for RM 300 million (PRESENT VALUE), it should at least appreciate to RM 347.29 million (FUTURE VALUE) to align with its tag of “Capital Guaranteed”. If RM 300 million (PRESENT VALUE) remain as RM 300 million (FUTURE VALUE), it actually deteriorates its fund holders’ value at the rate of 5% per annum! What’s the point for investors to invest into these funds if it serves no purpose at all. After all, they could place their money into bank’s Certificate of Deposit (CD) or Fixed Deposit (FD) to enjoy “Capital Guaranteed, Zero Risk” return. Currently, a FD depositor in Malaysia enjoys 3.7% return per annum. So, with RM 300 million (PRESENT VALUE), his account balance will show RM 334.55 million (FUTURE VALUE) after 3 years. That’s almost 35% difference!