What is a protected fund?

Umbrella funds composed of funds which aim and intend with the framework of best effort basis in reliance upon an appropriate investment strategy to repay a particular part or full amount of initial investment of the investor or a particular yield above the initial investment level to investor at particular maturity or maturities within the frame of principles set forth in information documents are named as “Capital Protected Umbrella Fund”.

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.
  • 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.
  • The investment strategy to be established by capital protected funds for protection of a certain part or full amount of initial investment of investor is required to cover investments made in public debt instruments, reverse repo, lease certificates, bank debt instruments, mortgage-backed and mortgage-covered securities and other private sector debt instruments the issuer of which holds the rating specified in Article 32 of of Communıqué On Prıncıples Of Investment Funds (III-52.1). or other capital market instruments eligible for protection and deemed appropriate by the Board.
  • 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 and capital protected 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.
  • Unit price of capital capital protected 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.
  • Costs directly incurred by investors, except for tax, cannot reduce the protected investment 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.