Background

With investments of the capital protection segment restricted to highly rated bank deposits as per the regulations governing these funds in the local market, these funds are likely to maintain a conservative risk profile. CPFs are in their design, structured as closed end funds. Alternatively, the fund may have a very high back-end load to discourage redemption prior to maturity. Investors who may need ready access to their funds may need to be cautious when considering investing in a protected fund. Depending on how the fund is structured, early withdrawal may mean losing the principal guarantee and facing early withdrawal fees. However, assigned ratings only comment on value of principal at the time of maturity. CPFs can be structured in many ways to ensure protection of principal to investors; however these structures are modifications of two basic types; I. Funds can either be Basic Hedge II. Funds or Aggressive Hedge Funds
Introduction

The concept of capital protected funds is also known as structured funds. A structured product is a combination of traditional financial instruments and derivatives and it is engineered to widen the range of investment opportunities for institutional and retail investors (Das 2001, p.3). In other words, the structured product is a package solution that allows the investor to invest in a variety of assets, even ones that are not typically available to the ordinary investor. The products are designed so that they are easily tailored to investor demand and risk preferences and they can offer risk/return profiles that are not available to the investor through conventional investment in financial instruments.

2.1 Fund terminology

The generic term for collective investment schemes is pooled funds or investment funds. They can be found worldwide, but with varying structures and names. In the US the funds can be categorized as mutual funds, closed-end funds or unit investment trusts. A mutual fund is a form of collective investment, which allows investors to pool their individual investments and thereby participate in a larger and more diversified portfolio of investments than would otherwise be accessible. Individual mutual funds can be further classified according to their asset orientation, such as stock/equity funds, bond funds, money funds, hybrid funds and so on, or by their investment objective, such as growth funds, income funds, index or tracker funds. 2.1.1 Investing in a capital protected fund The protected securities, or shares, that investors must buy in order to invest in a capital protected fund represent equity interests in fund portfolios, which could be all types of funds described earlier in section 2.2, with guaranteed or protected return of the principal, the investment amount, at maturity. The return is created by an investment in risky assets and the protection is obtained through the purchase of risk-free assets. Hence, at any given time during the investment period
Shares value = Risk-free Assets Value + Risky Assets Value

The Capital Protected Fund is classed as a cautious investment, and it could be suitable as a medium term investment. The fund provides 100% capital protection at the end of a specified period, while offering investors the potential for growth linked to the stockmarket. Key points y y y y y y Protection date 29 January 2018 Easy to invest CPF20 Growth capped at 52% of the amount invested 3,000 minimum investment (1,000 via an ISA) Also available through an OEIC investment 100% participation in the growth of the FTSE 100

Who is it for? The Capital Protected Fund is suitable for clients y y y y With a minimum of 1,000 (ISA)/3,000 (OEIC) to invest Looking to invest for a fixed term (usually 5 or 6 years) Who want potential for growth linked to the stock market Who want the security that their original capital investment should be protected at the protection date, even when the markets are performing badly

Why recommend it? The Capital Protected Fund could be suitable for clients who want y y y y y The assurance that they should get back at least what they put in if they stay invested for the fixed term Exposure to the stockmarket with the knowledge that their capital should be secure if they keep their investment until the protection date The opportunity to potentially earn a higher return than a conventional fixed-term deposit To use their ISA allowance Potential tax advantages of investing via an ISA

When can you invest? During the cash investment period only. During the cash investment period and the two weeks that follow, the fund will invest in cash or similar investments through Scottish Widows Investment Partnership's Global Liquidity Fund. On the derivative date, the Growth Potential Period starts and the Fund will move from cash or similar investments to invest primarily in derivatives. The Fund will remain invested in derivatives until the protection date. eServices and tools Online services Complete a range of tasks quickly and easily using eServices y y Fund switching Change client details

. Tools and calculators Our online tools and calculators can help you make clear recommendations, including reports to support your recommendations and an audit trail for compliance purposes y y Select your risk profile View fund factsheets, fund prices and fund performance

Capital protection fund in Pakistan (Al Meezan bank)

Meezan Capital Protected Fund-I

      
The first ever Shariah compliant capital protected fund of Pakistan. Capital protection* upon maturity through Meezan Bank. It provides Halal and Riba-Free returns on your investment under the supervision of Meezan Banks Shariah Supervisory Board**. Expected returns are higher than those offered by debt/income funds and bank deposits. The term of investment is three years and six weeks from the first day of the IPO. It provides tax rebate benefit upto Rs. 60,000/- on investment up to Rs.300,000/-under applicable tax law. Minimum Investment Rs.5, 000/- while there is no cap on maximum amount. Subsequent investment can be made during the open period with a minimum of Rs. 1,000/- only. All investments in mutual funds are subject to market risk. The NAV of units may go up or down based on the market conditions. Past performance is not necessarily indicative of future results. The investors are advised in their own interest to read the contents of the Offering Document, and in particular the Risk Disclosure in Clause 3.9 and Warning in Clause 12, before making any investment decision. The investment product being sold/marketed herein is exclusively offered by Al Meezan Investment Management Limited, a subsidiary of Meezan Bank. Meezan Bank is acting solely as a distributor/investment facilitator of the products. Investment Products are not bank deposits or obligations of or guaranteed by Meezan Bank.

Fund Statistics:
Fund Type Risk Level Open End - Capial Protected Minimal

Launch Date 18-May-08 Trustee Unit Types Central Depository Company A, B & C

Meezan Capital Protected Fund-I (MCPF-I), Pakistans first Shariah compliant capital protected fund, jointly developed by Al Meezan Investment Management Limited (Al Meezan Investments) Pakistans largest Shariah compliant asset management company and Meezan Bank, Pakistans first & largest Islamic Bank. MCPF-I is an open end mutual fund with a maturity period of three years and six weeks from the first day of IPO. MCPF-I provides an investment opportunity to investors who desire protection of their capital, are willing to invest for relatively longer periods and want to get benefit of potentially higher returns of the stock market. For capital protection 70% to 80% portion of the fund is placed through a Murabaha structure with Meezan Bank, which has a rating of A for long term and A1 for short term. The balance amount will be invested in Shariah

compliant equities in order to generate healthy returns. Based on the backtracking exercise of the fund structure, MCPF-I is targeting returns higher than the returns being offered by debt/ income funds and bank deposits. MCPF-I adheres to the Shariah guidelines laid by the Shariah Supervisory Board of Meezan Bank, chaired by Justice (Retd) Mufti Muhammad Taqi Usmani.

Salient features of MCPF-I

a. b. c. d. e. f. g. The first ever Shariah compliant capital protected fund of Pakistan. Capital protection* upon maturity through Meezan Bank. It provides Halal and Riba-Free returns on your investment under the supervision of Meezan Banks Shariah Supervisory Board**. Expected returns are higher than those offered by debt/income funds and bank deposits. The term of investment is three years and six weeks from the first day of the IPO. It provides tax rebate benefit upto Rs. 60,000/- on investment up to Rs.300,000/-under applicable tax law. Minimum Investment Rs.5, 000/- while there is no cap on maximum amount. Subsequent investment can be made during the open period with a minimum of Rs. 1,000/- only. Subscription of MCPF-I units was open for a period of six weeks from the date of the IPO. During this period units were available at Al Meezan Offices and branches of Meezan Bank across Pakistan. For the convenience of investors, Al Meezan has placed dedicated investment officers at selected branches of Meezan Bank. These Officers provide guidance and assist you in meeting your investment objectives.

* If you sell units before maturity capital protection will not be available and redemption will be made as per prevailing NAV net of back end load as defined in the offering document. Please note that the element of capital protection should not be interpreted as a guarantee. **Is some haram income accrues to MCPF-I, it is segregated and donated to an approved charity in consultation with the Shariah Advisor. This purifies the income of MCPF-I.

conclusion A typical capital protected fund is a mutual fund, ETF or likewise, structured by a developer usually a large financing institution who enters into an agreement of the repayment of the principal and the appreciation in the underlying asset, or fund, to the issuer. The issuer usually markets the fund and administrates the investor relations. In order to invest in the capital protected fund, the investors buy shares in the fund according to the amount invested and the share price. The method that the developer uses for hedging its repayment risk is where the option-based strategy and CPPI comes into the picture

Refrences http://www.scottishwidows.co.uk/extranet/products/investments/capital-protected-fund http://www.scribd.com/doc/51610485/7/Investing-in-a-capital-protected-fund http://pure.au.dk/portal-asb-student/files/13217/THESIS.pdf http://www.jcrvis.com.pk/Images/CapitalProtected-200909.pdf http://www.almeezangroup.com/MutualFunds/OpenEndFunds/MeezanCapitalProtectedFund/tabid /77/Default.aspx