LIMITING risk - and enhancing potential gain - are the incentives for investors in Jardine Fleming's new Thailand Capital Guaranteed Trust. But investors must be prepared to lock their money away for at least two years, or face stiff redemption charges. The fund is the first launched by the group since it received stinging criticism and record fines from regulators in Britain and Hong Kong. It is the seventh guaranteed fund the unit trust division has launched. Previous products raised about US$250 million. Downside risk in the Thai fund is limited because 95 per cent of the investor's capital after charges is guaranteed, no matter how low the Thai stock market's benchmark, the SET 50 Index, slumps. For example, if the market were to plunge by 20 per cent over the two-year investment term, an investor who placed $10,000 in the fund - after paying the initial charge of 5 per cent - would still have $9,500 returned. Alternatively, the fund provides for an enhanced return equivalent to 120 per cent of the index's average quarterly increase. The enhanced return is then added to the guaranteed amount - that is, 95 per cent of the original investment in the fund, less the 5 per cent preliminary charge. For example, if the market increased by 20 per cent over the two years, the investor of $10,000 (after paying the initial charge) would ultimately receive $11,900. This is the guaranteed portion of the up-front investment (or $9,500) plus $2,400 (or 120 per cent of the market's 20 per cent gain, for an ultimate yield of 24 per cent). The fund is denominated in US dollars, so investors are exposed to exchange-rate risk. However, the Thai baht is closely linked to the dollar and has not fluctuated by more than 2 per cent in the past year. Michael Ryder Richardson, marketing director of Jardine Fleming Unit Trusts, said investors would not lose their gains if the index slumped the day before the fund matured. 'Our method of calculating index increases ensures that quarterly gains are locked in if the market is volatile during the investment term,' Mr Ryder Richardson said. The bulk of investors' funds are invested in fixed-income investments that are denominated in US dollars and that earn enough interest to back the 95 per cent guarantee, which is also underwritten by British merchant bank Robert Fleming. A small portion of the funds is invested in sophisticated instruments that provide enhanced exposure to the SET Index. If the market rises, the investment grows accordingly. Mr Ryder Richardson said: 'The timing of the launch of this guaranteed fund is ideal, as the Thai market currently offers very attractive valuations. 'Having recently reached a three-year low, we believe the Thai market could stage a strong recovery.' Other market analysts are less sure. HSBC Investment Bank Asia remains positive about the Thai economy's medium-term prospects, despite a decision by Moody's Investors Service to downgrade Thailand's short-term debt rating. But Kleinwort Benson believes the country's travails are likely to continue for at least the first half of next year. A recent report states: 'Things are likely to get worse before they get better, since the full impact of Thailand's structural problems has yet to be seen or felt and the consensus is still too optimistic on 1997 earnings. 'We see a further 10 per cent to 15 per cent fall [in the SET 50 Index] and then a slow recovery to 1,050 by the end of 1997 - still 34 per cent below its 1993 peak.' The investment term is for two years from October 22, 1996, to October 22, 1998. The minimum investment is $2,000. There is a redemption fee of 2 per cent in the first year and 1 per cent in the second.