IIFL Mutual Fund has today launched its interval equity fund called IIFL Capital Enhancer Fund for investors who cannot digest equity volatility.
Prashasta Seth, CEO, IIFL MF and scheme Fund Manager believes that this fund offers an asset allocation opportunity for the cautious investor. Explaining the scheme’s broad strategy, he said, “The scheme will predominantly invest in select Nifty stocks which have potential to generate alpha over the index. To offset the equity market risk, we will fully hedge the portfolio using one year Nifty 50 put option.”
The fund will use ‘put option’ strategy through which, in a declining market, the scheme would seek to limit downside by purchasing Nifty 50 Put option with strike price around current levels. Thus, a Nifty 50 put option will increase in value when Nifty goes down from the strike price and vice versa. The fund house claims that the risk of loss for an option buyer is limited to only the premium paid.
Put option positions can be sold at a profit in a staggered manner to create cash flow for buying stocks at attractive valuations, if markets correct significantly in the interim period, said the fund house.
Amit Shah, CEO, IIFL Asset Management Business feels that the annual interval provides investors an option to evaluate their portfolio every year and take a call. Though the scheme’s focus will be on large cap stocks, it has the potential to outperform the index through careful stock selection, he added.
