principal-protection fund

A type of mutual fund that guarantees investors that they will get their money back after a set period of time. Principal-protection mutual funds are marketed to individuals who have had losses in their stock mutual funds. However, the National Association of Securities Dealers has warned that these types of funds may have higher than average expenses and perhaps lower long-term capital gains, which would increase income taxes that must be paid. If the fund is too heavily invested in bonds, then the investor could end up missing out on gains produced by the rising stock market.