If you pay attention to the press advertisement for the above fund (see my earlier post) in the major dailies, there are a couple of points that are rather misleading and could possibly cause confusion amongst investors, myself included!

According to the ad, the fund comes “with capital protection*”. However, in the fine print below the ad goes on to say, “Capital is not guaranteed. You may receive less than your capital should there be a downgrading of the issuer’s credit rating, issuer defaults, or if you do not hold the investment until maturity.” Hmmm 😦

The ad also highlights that investors can “(e)njoy up to 20% returns per annum”. Now I know it says “up to” and this is a neat sales trick used since ages old. But, based on August 06’s issue of Personal Money magazine, there is only a 43% chance that the fund will make 8% and above annually. Furthermore, there is a 94% possibility that it will record annual returns of at least 4%. What’s interesting is these percentages are estimates provided by Prudential’s own head of marketing and communications. This says to me that there is a very high chance that the fund can achieve a return higher than that for fixed deposits, but it may not be that much higher, and 20% is only remotely possible.

I shudder to think what hell would break loose if all mutual fund companies started marketing their funds based on the most remote of possible returns. I can see the headlines now “up to 150%”, “the sky’s the limit” etc etc. I mean if you think about it, in theory the sky really is the limit if we’re talking about equity funds. I know the competition is tough out there, but fund companies especially big reputable ones like Prudential really need to maintain certain ethical standards when it comes to marketing their products.

If you recall my earlier post about this product, I actually thought it’s pretty innovative and I really liked the fact that the entry cost is only RM5,000. But given the new information above about the most likely rate of returns, and the sales charge, it may not be as attractive as initially thought.