What Guaranteed Funds Are And How They Protect Customers

A Guaranteed Fund may be broadly defined as a fixed term investment to which a third party guarantees to reimburse the invested amount in the event the basic investment is fully or partially lost. For instance, many insurance companies offer a Guaranteed Investment Fund (GIF). When its customers invest in a bond or equity or similar funds, the insurance company undertakes to repay a predetermined fund with minimum value or the amount of initial investment. The insurance companies will charge a small percentage of the amount of investment annually for this guarantee.

Many states have guarantee funds to pay the claims of insurance companies that are financially affected. The respective state laws spell out the nature of insurance covered by these funds and the maximum payable limits. It is to be noted that most states forbid insurance companies from advertising the availability of a guaranteed fund. Nonetheless, insurers can personally verify if guaranteed funds protection is available before selecting the insurance company.

The nature and extent of coverage is subject to various conditions. When it comes to car insurance, the State Department of Insurance controls and administers the Guaranteed Fund to which all insurance companies contribute. Generally speaking, if an insurance company ceases to be solvent, the insurer will eventually get the car insurance money back – but the process may be long-drawn.

The mutual fund operators are professional and better informed investors and invest only in companies which are likely to perform well. Mutual funds, as a rule, invest 70 percent in debt and only the remaining 20 percent in equity. Hypothetically, even if the entire 20 percent invested in equity is lost, a good part of the investment is safe. There is, thus, guaranteed funds protection.

Capital Guaranteed Fund (CGF) is yet another form of investment made available by certain institutions. They insulate the initial capital investment from losses. When you invest in a CGF, it is guaranteed that you will not lose any money provided you do not prematurely withdraw your investment. Investors seeking absolutely risk-free investment can opt for money market funds that only deal in US government securities or single state money market funds or municipal money market funds. Money market funds that limit investments only in US Treasuries are understandably the safest.

The basic objective of a guaranteed fund is to ensure that the investor does not lose his/her initial investment. To say that no investor wants to lose money is to state the obvious. Every investor wants guaranteed returns and the risk factor to be minimal. It is for this reason that the bulk of investors avoid high risk investment and prefers investments covered by guaranteed fund – even if it means less attractive returns.

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