A Guaranteed Fund (“GF”) provides some form of guarantee to scheme members investing in the fund, usually on the capital invested or on a minimum rate of return. The guarantor usually charges a guarantee fee or reserve charge for providing such a guarantee.
A GF can be investment-linked
, in which case the fund return is based on the performance of fund assets, or non-investment-linked
if the return does not hinge on asset performance.
The majority of GFs in the MPF market are conditional guarantees
, which require fulfilment of a set of conditions, while an unconditional guarantee
is provided without any conditions imposed. In the case of conditional guarantees, it is important that you pay special attention to the guarantee or qualifying conditions, which may include:
- Minimum investment period - During this period, if you move units or assets out of a GF or your employer transfers all its employees' MPF accounts to another MPF scheme, the guarantee will become void.
- Withdrawal requirement – When scheme members withdraw their accrued benefits, the investment guarantee may only be applicable under specific circumstances, for example: after holding the fund for a minimum period (e.g. three years or above), making a minimum number of contributions (e.g. 90 contributions), holding the fund for a minimum period after making the last contribution (e.g. five years or more), reaching the age of 65, or otherwise meeting the legal requirements for early withdrawal of accrued benefits. Please click here for more information.
- Cancellation or modification of guarantee - You should check the offering document and other marketing materials for the circumstances in which the guarantor may cancel or modify the guarantee. For some GFs, the guarantor may unilaterally change the guaranteed rate by giving an advance notice of approximately three to six months. In certain cases, the guarantor may cancel the guarantee in the light of unfavourable market conditions.
Failing to meet the guarantee or qualifying conditions of a GF can mean that the guarantee does not apply to you. You should review the details and ensure you understand the guarantee or qualifying conditions before investing in a GF.
The risk of GFs is considered relatively low. However, there is the risk that the guarantor may fail to provide the guaranteed return. In addition, if you invest in a GF that is invested in an insurance policy, you should be aware of the credit risk of the related insurance company.
for an overview of the different types of MPF funds or learn more about the five major types of MPF funds with a visit to the MPF Investment Education Website