China Southern Fund Management Co. said it will soon sell the country's first guaranteed mutual fund, which safeguards an investor's principal no matter the market sentiment.

The open-end fund is still waiting for regulatory approval and is expected to be on sale after the Spring Festival, Lu Jin, a spokesman for the Shenzhen-based fund manager said.

"There is no major problem on the regulatory side. The China Securities Regulatory Commission praised our new fund product," she said. "We have been asked to modify only some minor things in our plan and the approval will come soon enough."

Unlike ordinary mutual funds, the guaranteed fund returns to investors their principals intact regardless of the ebbs and flows of the market.

In addition, investors can still get their principal back in case the fund posts losses in a bear market.

Given its nature, the guaranteed fund usually puts more of its weighting into the bond market and less into buying equities to ensure principal safety.

Under the existing rule, China's securities investment funds are required to publish their portfolios every quarter and to invest at least 20 percent of their capital in the government treasury bonds. The remainder goes to yuan-denominated Class-A shares.

According to China Southern Fund Management, its would-be open-end guaranteed fund is not expected to be open to subscriptions from additional investors within three years after its initial offering.

Initial investors can redeem their money from the fund once a week in the period. However, only investors who hold onto the fund for three years would enjoy the promise of the guaranteed principals.

"In a falling market, it would be a savvy strategy for investors to buy the guaranteed fund, which can help to hedge the risks," said Industrial Securities' analyst Liu Xiaohong.

"But when there is a bull market, the return from the guaranteed fund might not be so appealing than ordinary mutual funds."

(Shanghai Daily January 28, 2003)