Getting Financial Assurance with the Guaranteed Investment Fund

The guaranteed investment fund is a type of investment that many conservative investors prefer. Here are the basics of the guaranteed investment fund and how it can help you as an investor.

Guaranteed Investment Fund

The guaranteed investment fund is a financial product that is typically sold by insurance companies. With this product, you are guaranteed a certain amount of return on the investment. In most cases, you will be able to get at least your initial investment back at maturity.

Financial Assurance

With this type of investment, you can invest in stocks, bonds and index funds without taking on any risk. This provides financial assurance for those who are afraid of losing their initial investment. Typically, you will have to leave your funds invested for a certain amount of time in order to qualify for the guarantee. If you take your money out sooner, you may have to pay a penalty or you will not be eligible for the guarantee. Typically, this product also will provide your loved ones with your minimum investment in the event that you die. Therefore, it has a life insurance element to it as well.

Costs

In order to receive this guarantee, you will have to pay the company for it. They are not willing to give you this guarantee for nothing. In most cases, you will have to pay 1 to 2 percent of the investment amount in order to guarantee it. Therefore, this amount will come off of the possible returns that you could make with this investment.

Resetting the Guarantee

Many of these funds will allow you to reset the guarantee at a certain point. With this feature, you can lock in your profits when you make a gain. For example, let's say that you invested $10,000 at the beginning of the year. Later in the year, the investment is worth $14,000. At that point, you could reset the guarantee to $14,000. Now you know that regardless of what happens, you will be able to take at least $14,000 out of this investment. Many investors like this feature because they do not have to worry about losing the money that they have already made in the market.

Lower Returns

With this type of fund, the returns that you can get are typically low. In order to offer this guarantee, the fund manager will typically provide only investments that are very safe. When you take on a safer investment, you will have to give up some possible return as well. Therefore, you need to be prepared for small and steady gains with this type of investment. When you combine low returns and higher costs for the guarantee, many investors prefer to stay away from these funds.

Alternatives

If the idea of a guaranteed investment is appealing, you might also consider investing in a CD. This has lower costs and a guaranteed return. Even investing in a traditional mutual fund can provide you with some safety because of the diversification of the fund. By investing in a traditional mutual fund, you should be able to obtain greater gains as well.

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