China fund manager preps first guaranteed fund

China Southern is waiting for CSRC''s blessing, but how do you make a principal guarantee without a derivatives market?

Chinese regulators are mulling an application by Shenzhen-based China Southern Nanfang Fund Management to launch the nation's first principal-guaranteed mutual fund.

The drivers behind a guaranteed fund are similar to those in Hong Kong, where guaranteed funds have been virtually the only capital market investments retail investors have been willing to buy, in order to beat bank interest rates on deposits without assuming the risk of the volatile equities market.

But there is one huge difference China lacks a market for derivatives. In Hong Kong and other markets that allow principal guaranteed funds, the bulk of an investor's money goes to zero-coupon bonds, while a smaller amount goes to highly leveraged...

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