Structured product specialist Dawnay Day Quantum has established the Protected China fund, a capital-protected fund linked to the FTSE/Xinhu China 25 index for six years.
With the Protected China Fund, investors will get no less than 90 per cent of their original investment whatever happens to the index. If the index stays the same or rises, investors will get all their original capital back, but falls of up to 10 per cent will mean investors lose 1 per cent of their capital for every 1 per cent fall in the index, subject to the 90 per cent capital protection.
On top of this, investors will also receive 70 per cent growth in the index. The fund was designed to enable investors to gain exposure to China, which is characterised by political and economic instability- without putting their original capital at risk. Although China offers the potential for high returns but investing in an Oeic or unit trust leaves investors open to risks and this product is an innovative solution.
Growth in the Chinese economy looks likely to be sustained because production and labours costs are low and there is consumer demand domestically as well as demand for Chinese exports. The 2008 Olympics will also help by creating greater links between China and the rest of the world.
However, investors may be unfamiliar with the index to which this product is linked and they will be getting 70 per cent growth in the index rather than all the growth. However, investors may feel it could be worth paying for capital protection because emerging markets such as China are volatile.