Technical Savings and Investments Information

TYPES OF INVESTMENT-LINKED FUNDS

In theory, an investment-linked insurance policy can be linked to any type of investment funds. There are many types of investment funds, ranging from conservative funds (money market funds) to risky funds (warrant funds). Their classification is usually based on the stated investment objectives and underlying investments of the funds.

Insurance companies usually offer a wide range of funds to the policyholder. According to the individual policyholder’s investment strategy, he/she may first select the appropriate investment funds, and then form his/her own investment portfolio by allocating weights to the funds selected. For example, he/she may select Funds A, B, C and D and allocate 40% of the investment in Fund A, 30% in Fund B, 20% in Fund C and 10% in Fund D. The contributions will be invested according to this allocation. Insurance companies usually allow the policyholder to switch funds or alter the portfolio at any time.

Fund allocation is very important to balance the risk and return of the portfolio. It is therefore desirable that insurance intermediaries understand and are able to present the benefits and disadvantages of the different type of funds for the policyholders to make their final decision.

In Hong Kong, most insurance companies categorize their funds as deposit fund and unitized funds. They will be briefly summarized in the following sections.