Which item is NOT listed as a risk of investing in a Tracker Bond?

• A. Lack of access to funds during the term.
• B. Getting a return less than the rate of inflation.
• C. Unlimited losses if the indices fall.
• D. Having a guaranteed return.

Answer: (D)

Tracker bonds couple your payoff to an index, so the main risks come from market performance and liquidity rather than a guaranteed, fixed return. Being unable to access funds during the term is a real concern because these instruments are often not easily redeemed early and may carry penalties or limited liquidity. Inflation risk is also present since the return depends on the index, which can underperform and leave you with a real return below inflation. The potential for losses when the index falls is another key risk; if the product doesn’t protect capital, a drop in the index can reduce your payoff significantly. Having a guaranteed return, however, is not a characteristic of tracker bonds—these products do not promise a guaranteed payoff, so that option is not a risk inherent to tracker bonds.