What is a guaranteed fund?
Umbrella funds composed of funds for which it is committed in reliance upon an appropriate investment strategy and upon a guarantee given by the guarantor that a particular part or full amount of initial investment of the investor or a particular yield above the initial investment level shall be repaid to investor at particular maturity or maturities within the frame of principles set forth in information documents are named as Capıtal Guaranteed Umbrella Fund.
Guarantor refers to banks, and without prejudice to the provisions of applicable laws pertaining thereto, banks and insurance companies resident abroad, meeting the qualifications set forth in this Communiqué, which guarantee to the Fund the repayment to investors of the portion not met by the Fund of the investment amount committed to be repaid to investors by capital guaranteed funds within the frame of principles specified in the information documents.
What are the differences from other funds?
These funds have several distinct characteristics as a result of the need to establish a fund structure that will enable capital protection:
- Investors should join the fund at a certain period called “public offer period”. After this period, fund is formed and generally new investors are not allowed.
- They have a certain maturity with a minimum of six months and in order to benefit from capital protection, investors should stay within the fund until maturity. If participation certificates are sold before maturity, they are redeemed at the fund price valid for that sale order. This amount can be above or below the initial investment.
- Guarantor is required to hold the rating referred to in Article 32 of Communıqué On Prıncıples Of Investment Funds (III-52.1).
- Founder and guarantor of capital guaranteed fund are required to enter into a guarantee agreement in favor of unit holders covering a guarantee of payment to the fund upon the first demand of the founder or if the founder does not demand, upon the first demand of any one of unit holders, at the maturity of the guarantee agreement.
- Minimum contents required to be included in guarantee agreement and in the fund’s information documents with regard to guarantee are determined by the Board, and these contents should be kept throughout the maturity of capital guaranteed fund. It is required to obtain a prior consent of the Board for guarantee agreement and for all amendments in the agreement.
- Guarantee belongs to and is an integral part of fund. Payment of guaranteed amount cannot be subjected to any condition, and guarantee cannot be withdrawn.
- While active portfolio management is applied for classic investment funds (except for index funds), in general, passive portfolio management is applied for these type of funds. Thus, except for the partial redemption of assets because of early exit of some investors, no change is made in portfolio. Portfolio management strategy and type of funds cannot be changed during maturity of the fund.
- Capital protection techniques are at the core of the portfolio management. In line with this, these funds can invest in over-the-counter reverse repo and/or derivatives if there are no equivalent listed instruments with respect to maturity and other agreement conditions. Other fund types can invest in over-the-counter reverse repo within a certain limit; whereas such investment limit does not exist for these funds.
- All portfolio managers of capital guaranteed funds are required to hold a capital market activities advanced level license certificate and a derivative instruments license certificate and to have the required knowledge and experience about these funds.
- Credit risk exists for over-the-counter assets.
- If a guarantee commision is paid to the guarantor, this becomes an additional cost for the fund.
- Costs directly incurred by investors, except for tax, cannot reduce the guaranteed investment amount.
- Unit price of capital guaranteed funds are required to be calculated and announced at least twice a month.; whereas other funds make daily price calculation and disclosure. As a result of this, in order to exit, the investor has to wait for longer periods when compared to other funds. Also, in general, the sale order should have to be above a certain amount.
- Independent audit of financial tables can be made only at the maturiy; whereas, other funds should make this audit semi-annually. Also, the yearly financial tables of umbrella funds are subject to independent audit.