The regulator said investors should speak to their financial adviser immediately to ensure that the investment is suitable.
It said: “These funds are advertised as low risk and could be misleading to investors.
“On 13 April 2012 Connaught contacted its investors to inform them that the fund was unable to pay the scheduled quarterly interest payment to investors.
“If you have any further questions at this stage you should contact the adviser that sold you the investment.”
Connaught is one of regulated bridging lender Tiuta’s financial backers and also provides finance to Mayfair Bridging.
The FSA laid out its concerns about the fund in May last year saying: “In the literature we have seen, the Connaught funds are described as ‘very low risk’ and ‘low risk’.
“It makes comparisons between investing in them and putting your money in high street bank and building society accounts. We believe this is misleading.
“Connaught’s marketing material compares the returns on its funds with fixed-rate notice bank and building society accounts.
“However, customers need to be aware that these bank accounts have stronger investor protections should anything go wrong and offer lower risks to your money than there is investing in the Connaught funds.
“Furthermore, these funds offer a quarterly ‘fixed income payment’.
“Although, the probability of you receiving this payment depends significantly on the performance of the investments within the funds. We believe this is not explained well enough to investors.”
The FSA also said Connaught offers an “additional guarantee on the income” within the funds, but warned it is “unclear if investors would be able to understand what this guarantee is”.
Connaught consequently updated its investor literature.
On 7 March 2012 Connaught Asset Management, not regulated by the FSA, decided to suspend its Series fund 1.
The FSA said at the time: “The fund will be suspended whilst a review is completed to establish the true value of the fund and determine whether there is any shortfall in money held in the fund.”
Connaught was unavailable for comment.