Guaranteed products have recently entered the South African investment arena and come in all sorts of shapes and variations. They essentially all boast the following features:

  • They are five-year investment policies
  • The investment performance is based on a specific local or international stock market index stock market index (or sometimes a combination of these indices)
  • The investment performance can be geared (for example you can get 1.5 times the underlying index performance) or capped (for example, even if the underlying index achieves 30% growth in a year, your share is limited to 25%)
  • The original capital invested is guaranteed ( in other words, the worst you can do in five years, even if markets go downwards during the whole period, is get you money back)
  • In certain instances additional lock-in guarantees are offered whereby the growth portion is guaranteed (locked-in) once it reaches a certain level.
  • These products are sold in tranches (batches) which are only available until the particular batch is sold out or until a certain date has been reached.

The internal structure of these products is very sophisticated. They make extensive use of derivatives that enable the guarantees and the gearing offered. The first tranches were launched in SA in1997. Since then there has been a flurry of new products onto the market with ever-changing features and names.

There is constant innovation in the guaranteed products industry, and this has ensured that the variety of products is bewildering. The main variations relate to the index to which the product is linked and the different levels of gearing, capping, guarantees and costing.

The minimum investment varies from company to company, but us generally in the region of R25 000.

These products are usually underwritten by large international banking groups, which have the resources and the expertise to structure them. Some of these banking groups are larger than South Africa’s top 10 companies combined and the solvency risk would appear to be very low.