Principal Protected & Capital Protected Banned By MAS
In the Monetary Authority of Singapore’s (MAS) Part I Response to Feedback Received for Policy Consultation of the Regulatory Regime Governing the Sale and Marketing of Unlisted Investment Products released yesterday, the use of the terms ‘Capital Protected’ or ‘Principal Protected’ for mass market products familiar to retail investors will soon be banned. This decision follows the failure to come to a standardized definition for ‘Capital Protected’ or ‘Principal Protected’ that is easily understood by investors. Investors may not understand the difference between ‘Capital/Principal Protected‘ and ‘Capital/Principal Guaranteed‘.
Investors should note that even when the terms ‘Capital/Principal Guaranteed‘ are still allowed, it does not necessary meet that they will get back their initial investments no matter what happens. The question to ask is: Who provides the guarantee? Investors are still exposed to the credit risk of the party providing the guarantee. For example, if a bank provides the guarantee, investors may not get back their principal if the bank goes bankrupt.
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