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Definition

Capital Guarantee

Capital Guarantee is one type of investment plan that protects an investor's investment from loss. These are a few sorts of risk-free investment plans in which the fund company bears all losses. Investors in such funds are protected from losses, but the opportunities for higher returns should also be left behind. 

 To minimize the risk of loss, fund managers handle most of their (investors) underlying assets in fixed income and other commodities. In general, these funds require investors to remain engaged for a while. Therefore, these investments are ideal for long-term investors only, not those who need to increase their investment immediately. 

 These investment plans are known for their illiquidity or lack of liquidity which indicates that this fund cannot provide easy access to the deposited cash and the invested capital remains locked for some time. Due to the way Capital-Guaranteed Systems are designed, investors can lose money if they withdraw funds too quickly. 

 

Use of this Term in Sentences 

  • Capital guarantee funds often use low-risk commodities, derivatives strategies to hedge losses. 
  • Due to the structure of the capital guarantee fund, the time needed for the fund to become mature will be longer than other investment plans. 
  • Capital guarantee funds are usually established for a limited time.

 

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