AMCs looking at launching capital protection oriented funds
In the market volatility, many fund houses are launching capital protection oriented funds. SBI Mutual Fund and Sundaram Mutual Fund have filed six offer documents with SEBI and are awaiting clearance.
“Equity markets are volatile currently and we feel that over three years the market would definitely give good returns. Fixed deposit interest rates are already at its high, so we feel it is the right time to launch a capital protection oriented fund,” said Sunil Subramaniam, Director - Sales & Marketing, Sundaram Mutual Fund.
A typical capital protection scheme invests a small portion of the pool in equities while the larger portion (about 75%) is parked in debt and money-market instruments. By allocating a portion to equities, the fund is expected to participate in the upside during a bull run and and the debt allocation is expected to offer downside protection in a bearish market. Capital protected funds do not vary much in structure. The debt portion is loaded up with high-yielding commercial papers and non-convertible debentures.
AMCs are looking forward to selling their products through IFAs and banks. But a few IFAs are reluctant to sell these products. “I am not looking forward to sell such product as FMPs and MIPs already exist in the market,” said Dinesh Khemlani, partner, Comsol investments.
Six months ago, ICICI Prudential Mutual Fund, Religare Mutual Fund, IDFC Mutual Fund and Birla Sun Life Mutual Fund had launched close ended capital protection oriented fund. ICICI Prudential Capital Protection Oriented Fund - Series II has garnered an AUM of Rs 10 crore since its launch in June 2011 while Birla Sun Life Mutual Fund has collected Rs 96 crore under capital protection fund Series -6. IDFC CPO–III (G) has mopped up Rs 16 crore since inception (August 2010).