Guaranteed Income Fund
The GIF pays a regular income amount during the term and aims to return a $1.00 unit price at maturity. The manager sets the income rate at the issue date of each unit class, and it is fixed for the term. Investors have the choice of several term options, ranging from one to six years. At December 2011, the annual income rates ranged from 4.98% (one year) to 5.89% (five years). GIF is offered by Challenger Managed Investments Ltd., while the fulfillment of financial obligations to investors is subject to the counterparty risk of Challenger Life Company Ltd. 

S&P Fund Services analyst Rodney Lay stated “the value proposition of GIF is ultimately a risk/return equation and, on a relative basis, that profile should be compared with more competitive term deposit rates. In relation to return, we note that on a relative basis GIF income rates have declined materially over the last 18 months or so, to a level we regard as mediocre. GIF income rates are currently as much as 40 basis points below the most competitive term deposit rates. Furthermore, pricing levels set by the issuer over the past 12 months do not provide us with confidence that the one- to five-year options will be priced at a rate above more competitive term deposit rates in the foreseeable future.”

Challenger Guaranteed Annuity 
GA is an annuity that provides a guaranteed regular income for a selected term (1–50 years). The manager sets the income rate at the issue date, and it remains fixed for the term. GA is issued by Challenger Life Company (CLC or the manager) and is offered by Challenger Managed Investments Ltd. (CMIL). 

S&P Fund Services analyst Rodney Lay stated “the value proposition of GA is essentially twofold in our view. Firstly, in its risk/return equation relative to term deposits and, secondly for the terms beyond five years, the ability to mitigate the interest rate roll risk that exists when rolling over a term deposit”. 

However, what dampens our view on GA is the rate of return. While GA compares favourably to other annuities, both over shorter and longer terms, the earnings applicable to the one- to five-year term options are lower than the higher term deposits currently available. Furthermore, term deposits equal to or less than A$250,000 are covered by the Federal Government’s Deposit Guarantee Scheme.

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