Three large fund houses have collectively launched 10 capital protection funds in the last three months.
After the Union Budget dealt a blow to debt funds, particularly one year FMPs, fund houses are coming up with different products to woo risk averse investors. Since July, three large fund houses – ICICI Prudential, Birla Sun Life and UTI have come out with 10 capital protection funds with maturity of over three years.
Currently, three NFOs of capital protection funds - Birla Sun Life Capital Protection Oriented Fund - Series 23, Canara Robeco Capital Protection Oriented Fund Series 3 and ICICI Prudential Capital Protection Oriented Fund - Series VI - 1100 Days Plan H are open for subscription.
Also, HDFC, Birla Sun Life, ICICI Prudential and BOI Axa have filed draft offer documents with SEBI to launch a series of capital protection funds.
“Some investors don’t want to take direct exposure to equity which is why AMCs are offering capital protection funds. The performance of these funds depends on the timing of the launch. Since the economy has bottomed out and the new government is doing well, the equity market is poised to grow from here,” said a senior official of foreign fund house.
Capital protection funds are typically closed end which are listed on the exchanges post NFO. Benchmarked against CRISIL MIP Blended Fund Index, they aim to protect capital by investing up to 80% in fixed income securities maturing on or before the tenure of the scheme. A small portion of assets (up to 20%) is invested in equity. The fixed income corpus invests in money market instruments like CDs, CPs, treasury bills and the balance is invested in equity derivatives which is used as a hedging strategy. The portfolios are disclosed twice a year. The returns from capital protection funds could be hard to predict as the capital appreciation is completely dependant on equity markets performance.
"We are of the view that a customized portfolio depending on the desired asset allocation of the investors can be created by using our set of recommended equity and debt funds. This will not only enable us to create a portfolio based on the investor’s investment goals and time horizon but will also help in rebalancing the portfolio on a regular basis. Hence, we normally do not recommend our investors to take an exposure into close-ended capital protection funds as it will affect our portfolio rebalancing capabilities," says Renu Pothen, Research Head, iFAST Financial India.
Suresh
Sadagopan of Ladder7 Financial Advisories is of the view that risk averse investors
having three to five years investment horizon can invest in capital protection
funds. “Since debt funds have given attractive returns in the past, risk averse
investors can put a small portion in such funds to get exposure to equity.”
Vishal Dhawan of Plan Ahead Wealth Advisors feels that investors can take a small exposure to equity through these funds. “Capital protection fund give an opportunity to investors to add a small portion of equity in their portfolio. However, I believe a combination of equity fund and debt funds can deliver better performance than investing in a capital protection fund alone.”
