China's fund industry is booming as fund managers develop new products to meet changing investor demand.

Several new fund products, including China's first guarantee fund, are expected to be launched soon. The product, to be sold by Yinhua Fund Management Co. Ltd from next Monday, offers a new choice for conservative investors, who often shun stock investments fearing investment losses.

A guarantee fund is a fund that guarantees the safety of the principal for buyers over a certain investment period. It often combines low-risk investments, like bonds with fixed yields, with other securities investment such as stocks that may yield higher returns but also involve more risk.

Introduced from overseas markets, the guarantee fund to be sold by Yinhua is the first of its type approved by the China Securities Regulatory Commission (CSRC), China's securities watchdog.

Compared to other securities investment funds, guarantee funds may have smaller returns, but should be more acceptable to those unwilling to shoulder high investment risks, said Wang Lixin, deputy general manager of Yinhua Fund Management Co.

China has hold more than 10 trillion yuan (US$1.2 trillion) in savings in its banks. But so far its investment channels for retailers have been limited.

Wang said the Yinhua guarantee fund, targeting retailers, would protect 100 percent of the principal invested over a three-year period.

Wang estimated the net return would be higher than the interest rate on a one-year bank deposit, which is 1.98 percent now, and said it may reach 6 percent annually.

Beijing Capital Group Co Ltd will provide the guarantee for the fund and China Construction Bank will be the custodian. Having a specialized guarantee agency will ensure fund buyers will not shoulder investment risks themselves and also differentiates the fund from other investment products.

In developed markets, guarantee funds and their low-risk features make them good choices for investors when the stock market is at a low, said Ba Shusong, deputy director of the financial research institute of the Development and Research Center.

In China, it may help divert more bank savings into securities investment and give the fund managers more potential customers for other investment fund products, he said.

Meanwhile, CSRC has also been working on a guideline regulation on the development of guarantee funds. The draft was sent to fund managers last year for comment, but has not been formally enacted yet.

The draft regulation required fund managers to have a sound strategy to ensure the safety of the principal invested, insiders said. It said that investors should be able to get back a minimum 90 percent of their investment on the expiration of the guarantee fund contract.

The rule also set a threshold for the guarantee agencies, like minimum net assets of 5 billion yuan (US$603.9 million) and three years of operational records, to ensure their financial strength.

(China Daily February 9, 2004)