Multiple choice

There is no contractual guarantee for repayment of principal or interest to an investor in

  1. bank deposit

  2. debt fund

  3. secured debentures

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Bank deposits have contractual guarantees from the bank (and deposit insurance in many countries). Secured debentures have collateral backing and specific repayment terms. Debt funds, however, invest in debt securities but pass the credit risk to investors - there is no guarantee of principal or interest repayment. If underlying bond issuers default, debt fund investors can suffer losses. Option B is the correct answer because debt funds lack contractual guarantees unlike bank deposits and secured debentures.

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