There are 151 guaranteed funds sold onshore and they promise to shield investors from capital losses, according to the CSRC. However, last August the regulator ran a public consulation after warning about the potential risks this type of product carries.
The CSRC has now decided that new products can no longer be called “guaranteed funds”, “to guide investors toward reasonable expectations” as there is risk of losing investment capital amid extreme scanarios, the guidelines stated.
The new rules instead limit the funds’ investment scope and duration of holdings to reduce risk exposure. For instance, 80% of the portfolio must invest in “stable assets” such as bank deposits, commercial papers, government and quasi-government bonds or those with AAA credit ratings.
It also lists out the requirements of the fund issuser as well as the guarantor.
The watchdog noted all existing guaranteed funds are under the joint guarantee scheme, meaning the fund house may have to absorb the potential losses alone, instead of a third-party guarantor.
“While some fund managers focus on launching guaranteed type of products, if they are unable to make compensation after encountering losses, investors’ interests will be harmed,” the CSRC noted.
According to the state-run Securities Times, nearly one-third of guaranteed funds have net asset values below the guaranteed level.
Returns have been hit by volatile stock and bond markets in the past year. The average return of these funds plunged to 0.05% in 2016, compared to 18% in 2015 and 17% in 2014, the report noted.
