It is well known that currently capital protected funds are selling well. However, I’ll personally not invest in those. A capital protected funds comes in different forms. Besides the usual structured products, it may come in the form of single premium endowment policy.  Here are the reasons:

Rule #1 of Investing: Low risk low gains. However inflation is already more than 6%. Net of inflation and the gains become a lost. For an investment that gives guaranteed losses after taking inflation into account, how than can the investment be low risk? To me it sounds like high risk!

Rule #2 of Investing: High risk, high gains. Sounds common sense too but many people are fearful of losing money. But that note the following:

Rule #3 of Investing: Be greedy when others are fearful; Buy low and sell high. Currently the market sentiment is bad. Credit problems in the market, high inflation, riots and protest against high oil prices, starvation reports due to high food prices. Stock market has been going nowhere and in fact made losses over one year. At this moment, there is fear in the market. With markets coming down so much, this is a time to buy.

Rule #4 of Investing: Learn from history. When the technology bubble burst, many people invested into capital protected products with long lock in period (3 – 5 years). What happen next is that the equity markets had a major bull run during this period. When the monies matured, gains from the capital protected product hardly outperform inflation (I personally had invested in those). After taking into consideration of the huge equity market returns, these investors lose a large sum in opportunity cost.

Now, history is repeating itself. People buying into capital protected products with long lock-in.