Technical Savings and Investments Information

Unitized Funds

These are specific, separately managed funds, either managed by the insurance company itself or independent fund managers. Some of the commonly used types of investment funds are outlined as follow:

(a) Bond Fund
Principal objective: to provide stable income with minimal capital risk
Special features: investing in bond market; being equivalent to a diversified bond portfolio; debt securities issued by governments or large corporations; and some may invest in higher yield junk bonds.

Advantages: higher return than money market fund; fund managers can trade and take advantage of interest rate movements; and usually can cover inflation.

Disadvantages: risk of rising interest rate; and credit risk of issuer.

(b) Equity Fund
Principal objective: to achieve higher long-term capital appreciation
Special features: investing in equity market; more suitable for long-term investment; and being equivalent to a diversified shares portfolio.
Advantages: higher historical return; good hedge against inflation; and full utilization of fund manager’s expertise.
Disadvantages: higher management fee may be charged; higher risk than bond funds; and risk of company failure.

(c) Index Fund
Principal objective: to mirror specific index performance
Special features: passive management; automatic investment decisions; limited number of transactions; and may also be tied to non-equity indices.
Advantages: easy to understand; lower management fee; less risky than index futures; and hedging available.
Disadvantages: cannot capitalize on market movements; only track market performance; cannot outperform market; and unwelcome during a bear market.

(d) Warrant Fund
Principal objective: to achieve exceptional high return
Special features: investing mainly in warrants; and leverage through the use of warrants.
Advantage: possible high return
Disadvantage: extremely high risk

(e) Global Fund
Principal objective: to invest in stocks or bonds throughout the world
Special feature: international investment
Advantages: diversification; and capture overseas investment opportunities.
Disadvantages: currency, political risks; complicated custodian arrangement; differences in accounting procedures; and lesser degree of public information.

(f) Regional/Country Fund
Principal objective: to invest in a specific region or country
Special feature: typically closed-end funds, could as well be open-ended funds
Advantages: potentially high growth; and capture the opportunity of a region.
Disadvantages: high risk; low liquidity; and lack of diversification.

(g) Specialty Fund
Principal objective: to invest in a specific industry/sector and capitalize on the return potential
Special features: concentration in one particular industry; and high risk, high return.
Advantages: potentially high growth; full utilization of fund manager’s knowledge on the particular industry; and capture the opportunity of an industry.
Disadvantages: higher risk potential; lack of diversification; and low liquidity.

(h) Income Fund
Principal objective: to generate current income rather than to achieve growth
Special features: dividends from preferred stocks; and coupon payments from bonds.
Advantages: regular income; medium risk; and good liquidity.
Disadvantage: relatively low capital appreciation

Some income funds maintain more aggressive objectives than others.

(i) Balanced Fund
Principal objective: to achieve both income and capital appreciation and to avoid excessive risk
Special features: investing in a combination of stocks and bonds; emphasizing the growth potential of stocks; relative stability of income from bonds; and mid-way between bond and growth fund.
Advantages: balanced risk and return; and diversification.
Disadvantages: medium return; and may not fully capitalize on a bull market.

(j) Growth Fund
Principal objective: to achieve maximum capital appreciation rather than a flow of dividends
Special features: investing in growth stocks; and may invest in smaller, lesser known companies out of mainstream market which fund managers believe possess dynamic potential.
Advantages: higher growth rate; and full utilization of fund manager’s expertise.
Disadvantages: some fund managers may adopt highly aggressive/speculative strategy; extremely high risk; and no consistent income/dividend flow.

(k) Guaranteed Fund
Principal objective: to be neutral to negative market performance with a guarantee on the principal/return
Special feature: guaranteed amount will be paid upon maturity
Advantage: no risk of principal
Disadvantages: application of high guarantee fee; minimum investment period applicable; special conditions may apply; and relatively lower return.

(l) Fund of Funds (Unit Portfolio Management Funds)
Principal objective: to carry out diversified professional management
Special feature: investing in other mutual funds
Advantage: diversification
Disadvantage: higher management fee may be incurred