People who want to invest without taking many risks can opt for an investment product with capital protection. But how safe is that?

There are investment opportunities for everyone. Investors who prefer to take matters into their own hands decide for themselves what their portfolio looks like. In addition, they are free to choose how many shares, bonds or other assets they can own.

No experience or time
If you have little experience with investing or do not have the time to put together a portfolio yourself, you can subscribe to an investment fund. In such a case, the capital is managed by an external party. That manager distributes the capital over various securities based on the profile of the customers.

Dynamic investors' investment portfolio will focus on equities, while more defensive investment funds invest mainly in bonds.

Refund of investment capital
Who wants to reduce the risk to the minimum can consider investing in a product with capital protection. As the name suggests, you will receive a full refund of your deposit at the end of the investment period. At least there the administrators strive for.

Deposit guarantee scheme
In our country there are three investment products of which you are certain that you will get your money back at the end of the journey anyway: Federal Deposit Insurance, Savings Deposit and the deposit accounts.

These three products are protected by the deposit guarantee scheme. This means that the capital will be repaid up to 100,000 euros if the manager goes bankrupt.

Other investment products with capital protection?
Bonds and structured products with capital protection on maturity also belong to the investment products with capital protection. Even with such investment products, you are never sure that you will get back the entire investment capital at the end of the journey.

Invest in bonds
Those who invest in bonds give companies a loan. In exchange, investors receive a debt certificate. A coupon is linked to such a bond. This coupon is valid for the entire term of the bond. This term is set at the start of the contract.

Those who keep the bond in their portfolio until the end of their term will receive their capital back at the end of the journey. Even if that is not a guarantee. In this way, bond investors risk losing part of their investment if the company they own debt paper places the books. The higher the coupon, the greater the risk.

Capital protection on maturity
Structured products with capital protection on maturity give the impression that your investment is safe, but that is not always the case. Such products can be compared to a bond: they have a fixed term, and if everything goes well, you get your money back in the end. Such products are composed of various financial instruments.

Sell ​​investment
An important feature of bonds and structured products with capital protection on maturity is that when you sell your investment on the secondary market, you have no guarantee that you will pay back your entire capital.

For example, bonds are worth less when interest rates rise. Whoever sells his bonds during an interest rate rise will receive less money for the debt paper.

If you have questions about a product, do not hesitate to ask a consultant. Therefore, never invest in a product that you do not understand.

Author's Bio: 

Misty Jhones