Fund management houses insist guaranteed funds will continue to attract ample demand this year despite the buoyant equities market. Guaranteed funds are considered a safe haven for retail investors during bear markets because they are structured to preserve capital investment and offer a small return. But the funds have proven popular in bull markets as well. Net sales of guaranteed funds accounted for 37 per cent of Hong Kong fund sales as of October, according to data from Hong Kong Investment Funds Association. This is despite a 34 per cent gain for the Hang Seng Index. Equity funds, meanwhile, accounted for 13 per cent. Industry players said guaranteed funds were helped by low interest rates and inflation, as the products targeted investors who would otherwise be bank depositors. 'The inflation rate is expected to remain at low levels [this year],' said Rex Lo, vice-president of KBC Asset Management, an investment management subsidiary of Belgian-based KBC Bank. To tap demand, KBC has launched a guaranteed fund product, KBC Flame Tree Guaranteed Fund, which would be sold exclusively through Hang Seng Bank. KBC aims to raise a minimum of US$50 million. The fund would give investors a 100 per cent capital guarantee at maturity and coupon returns linked to the performance of a share basket of 20 United States and European companies. The fund has a term of 4.75 years and will mature in November 2008.