Investors are better off putting their money in bank savings deposits and the rest in mutual funds rather than guaranteed funds, according to a leading asset-management executive. 'Guaranteed funds are a marketing gimmick now,' said Alan Harden, managing director and head of the pacific region at Citigroup Asset Management. He said Citigroup last year launched two guaranteed funds when interest rates were high enough to allow such funds to have more participation in other investments such as equities. 'It's a big challenge as guaranteed funds today are becoming a gimmick and customers are better served by keeping their money in bank deposits and invest some of it in mutual funds and [ultimately] get 100 per cent gains when the market goes up.' With the current low interest rates and expectations of more cuts by the United States Federal Reserve, more participation in fixed-income instruments would be needed to secure the funds' capital, hence there is little or no room for investments in equities to reap the upsides when the market rebound. Mr Harden said the biggest challenge for the fund industry now is convincing players to invest at the right time. 'The hardest thing is to attract customers at the right time. Customers, during the chaos, should be ready to pay for expert advice and management and in the long term make more money, but they [investors] are scared.' In the past few years, Asian economies have been battered by the Asian financial crisis and the slowdown in the US economy and during such periods of uncertainties fund-management services are useful to retail investors as they can protect them from the downsides of the market, said Mr Harden. He said the average 10 per cent mutual-fund penetration in Hong Kong exposed a slower growth of the fund industry than he would have expected. 'With the amount of money pouring into education about mutual funds, the acceptance should be higher than it is for the citizens of Hong Kong,' he said, citing a lack of transparency and understanding of mutual funds as the main reasons for the poor response. He expects a market penetration of 25 per cent to 30 per cent for the asset-management industry in the longer term. Citigroup launched a new investment product in Hong Kong last month, the unit investment trust (UIT). A first of its kind in Asia, UITs have a significantly shorter product life cycle than other mutual funds, with a holding period of one year. 'We make a decision for a one-year period,' he said. A big advantage of a UIT product is that it is cheaper than a mutual fund, as the management fees are significantly lower. 'It is a buy and hold for one year concept and very little management is required.' The only drawback of a UIT is that there is no flexibility in the fund, as chosen stocks can not be traded during the holding period. UITs have been available in the US for more than 25 years and, according to Mr Harden, will comprise a major part of the Citigroup Asset Management's business in Asia eventually. 'We will develop a series of products over the next year and we hope to launch another UIT by January,' he said. Mr Harden said the exact type of UIT product launched will be determined by the investment climate at that time. 'We want to introduce customers to a whole new way of investing.'