Where do you see this?

On the prospectus of some investment products and in newspaper articles.

What does it mean?

The term 'capital guaranteed', when applied to an investment product, means that an investor is guaranteed to get back the money he invested on maturity of the product.

This is because a guarantor, usually a third-party financial institution, guarantees investors will get back their principal sum. The issuer of the product can also place the guarantee.

But that does not mean capital guaranteed products pose no risk.

Investors need to be mindful whether the guarantor can repay them. If the issuer is placing the guarantee, then investors should be concerned with the risk that the issuer does not fulfil its obligation.

Capital guaranteed should not be mistaken for 'capital protected' - a term that will be outlawed in Singapore. The Monetary Authority of Singapore (MAS) recently announced that it will ban firms from using 'capital protected', 'principal protected', or similar terms to describe investment products. This will apply to mass-market products like structured notes and unit trusts.

A capital protected product is one where the principal sum is ploughed into investments like bonds, which, on maturity, are expected to provide the 100 per cent principal protection.

Why is it important?

Many retail investors, even the more experienced ones, cannot differentiate between the terms 'capital guaranteed' and 'capital protected'.

The MAS decided to ban the term 'capital protected' following concerns by some investors about the difficulties they faced trying to tell the two terms apart.

With the ban, there will be basically two types of products allowed to be sold. One that is capital guaranteed and everything else that is not.

So you want to use the term. Just say...

'This investment product that I bought is capital guaranteed by XYZ bank, which ensures I will not suffer losses on my initial capital investment.'

Gabriel Chen

This article was first published in The Straits Times.