Actively managed, diversified investment funds with capital guarantees are emerging as an alternative to tracker bonds for investors who want to benefit from the returns available on the stock market, but don't want to end up with less than they put in.

Their popularity is not surprising given that almost half of Irish people believe buying stocks and shares is too risky, according to a new global survey of consumers conducted on behalf of Hibernian Life & Pensions' parent company, Aviva.

Some 47 per cent of the Irish respondents to the survey answered "yes" when asked if they thought direct investment on the stock market was too high a risk for them.

Over a third of consumers also said they were less willing to take financial risks now than they were five years ago, according to the survey.

As a result of the survey's findings, Hibernian Life & Pensions expects there will be strong demand for a new guaranteed fund it is selling.

Mr Ian Veitch, marketing and product development director for Hibernian Life & Pensions, said the fund addressed concerns raised in relation to guaranteed products such as tracker bonds, many of which have been criticised for a lack of transparency, high charges and delivering far from spectacular returns.

Friends First also offers a Protected Investment Bond, which marketing manager Mr Paul Hurley describes as a "hybrid" bond adopting elements of a unit-linked fund, a tracker bond and a with-profits bond.

Both the Hibernian and Friends First bonds have relatively low minimum investment thresholds, at €6,000 and €10,000 respectively.

However, according to Mr Hurley, the average premium it is receiving for the Protected Investment Bond is closer to €100,000.

This may indicate that even investors who can afford to tie up six-figure sums of money for five years are unwilling to expose their cash to equity markets without the safety net of a guarantee.

The Hibernian Guaranteed Fund and the Friends First Protected Investment Bond are transparent in terms of both the ongoing performance and the charges applied.

Like trackers, low-interest deposits and cash funds, the main risk involved is that the return won't beat inflation rates, meaning the money is losing value in real terms.

The fund management charges - 1.5 per cent per annum at Hibernian and 1.85 per cent at Friends First - are slightly higher than they might be on other unit-linked managed funds, reflecting the cost of offering the all-important guarantee to investors.

Early encashment charges also apply. On the Hibernian fund, these work out as 5 per cent of the initial sum if it is encashed within the first three years, 3 per cent in year four and 1 per cent in year five.

Up to 6 per cent of the value of the fund can be taken as regular income within the first five years without incurring a charge.

On the fifth anniversary of the fund, the capital guarantee kicks in.

Meanwhile, Friends First's early encashment charges work on a sliding scale starting at 6 per cent in the first year and ending at 3 per cent from the fourth year until the end of the fixed term of roughly five years.

Some tracker bonds invest in a comparatively small basket of about 20-25 shares; however, both Hibernian and Friends First boast greater diversification on their guaranteed products.

The Friends First bond invests in a unit-linked fund comprising a European equity fund and bonds.

If there is strong steady growth in the markets over the full term, investors simply get their initial capital back plus the growth in the fund value at maturity .

If performance is volatile another mechanism comes into play. Investors are awarded a bonus after six months and thereafter on the anniversary of this date. At the end of the term, they may receive back their initial capital plus the highest of these bonuses.

This scenario would happen if the fund performed better over a particular part of the term rather than over the entire term.

The Hibernian fund will initially place one-third of investors' money in equities, one-third in a euro-zone bond and one-third in Irish commercial property.

After five years, investors will receive their initial capital back, less any cash withdrawals, plus the growth on the fund.

It is also possible to switch into another Hibernian fund.

"In a year's time the investor could inherit a bucket load of property or win the Lotto, so they might decide a full equity fund would be the better deal for them," says Mr Veitch.

With the memory of three disastrously volatile years for equities still firmly etched in investors' minds, it may take something special to restore investors' confidence.

"To be blunt, we need a good story to get people back into equities," says Mr Veitch. "It's going to take a reasonable period of growth to get people back into the market."