Absolute return funds aim to achieve a positive return year after year, regardless of market conditions.

This is obviously an attractive prospect when markets are volatile and you don’t know whether they will go up or down from one day to the next. In all honesty that’s every day in the world of investing.

But in my view what these funds do is offer something very dangerous to the average investor. In my opinion they use complex strategies to achieve non-complex returns, and charge very good money for the pleasure of playing with your investment.

For me the risk level of an investment is equal to the highest amount of risk taken by the fund managers. Added to that is the lack of understanding many people have of these funds.

Remember you should only invest in what you understand. If you don’t understand it then you typically have a greater chance of losing money.

Making a positive return year after year by investing in sophisticated investment instruments is pretty high risk. The fact that the funds aim to deliver a steady, low return each year does not make the investment itself low risk.

So if we’re saying they are low return, high risk investments and they charge nearly 2% per annum, if think they can at least be questioned as to their part in any portfolio.

Add to this the risk levels involved in participating in derivatives and other equity related investments and you have a fund that could easily go wonky.

Of course these are just my thoughts and opinions and are by no means correct. But the more useful information you have at your disposal the better chance you have of investing success.

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Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on jaskarn@investorprofile.co.uk