How is the principle of capital guaranteed in the stock market?

Since investing in the capital market is always associated with risk, during the past weeks, the Securities and Exchange Organization has announced its agreement in principle with capital guarantee funds, in order to guarantee the principal of the capital during the downturn, as well as profit during the upswing. achieve

According to Isna, perhaps the most unpleasant risk of investing in the stock market for people, especially new entrants, is the reduction of the capital or the initial investment that they bring into this market, because sometimes this capital is provided from people’s main assets. On the one hand, investors don’t want their principal to realize risk and loss; On the other hand, they are interested in enjoying efficiency and profit in conditions of growth and rising index. In this regard, a new mechanism has been created in the capital market, which will soon enter the market. This new tool, while guaranteeing the principal of the capital in the down period, also achieves profit in the up period.

During the past weeks, the Securities and Exchange Organization has announced its agreement in principle with the capital guarantee funds, these funds guarantee the capital principal that people enter the market with their own mechanisms.

Methods of guaranteeing the principal of the capital

The aforementioned funds have a guarantor element, in other words, in case of unfavorable performance of the fund, the principal of the capital or the initial investment is guaranteed anyway. Of course, there are differences between the guarantee elements. In the first type, which is the guarantee by the portfolio manager, the portfolio company providing the fund, which is approved by the stock exchange organization in terms of financial strength and good record, is the guarantor and guarantees the capital in case of loss.

The guarantee fund is issued and canceled with the guarantee of the bank manager. This type of fund is also classified in the category of mixed investment funds, which will give investors the opportunity to benefit from the growth of the market during the growth of the market along with guaranteeing the initial income during the market decline. The purchase price of each unit in subscription is 1000 Tomans.

In the second type, which is guaranteed by the investors’ guarantee, the guarantee is with the lever guarantor, which has a complex mechanism. In this type of fund, first a tradable fund (ETF) is subscribed, and the minimum amount required to buy units of this fund is 100 million tomans. The principal capital in this fund is not guaranteed and is associated with risk. After the issuance of the license to establish this tradable fund (ETF) and the start of its activity, another fund is issued and subscribed in the form of cancellation, which actually guarantees the capital of these units, and the guarantor of this fund is the same initial ETF fund that was associated with risk. . In other words, instead of a portfolio manager, ETF fund investors are guaranteed fund units.

What is the difference between the two types of capital guarantee funds?

In the first type of fund, which is guaranteed by the guarantor, since the establishment of the fund, you can buy the units of this fund that have a guarantee, but to buy the units with the guarantee of the second type of fund, which is guaranteed by a leverage mechanism, you must first wait until the units are subscribed. This fund can be traded to be completed.

The guarantee fund with guarantor is guaranteed by the portfolio company of that fund, while the guaranteed units of the guarantee fund with leverage mechanism are guaranteed by other investors who bought the tradable units of this fund.

For this reason, the tradable units of the guarantee fund with a leverage mechanism have a higher risk for its investors than the portfolio guarantor, especially in periods of severe market decline.