What do you expect when you invest in a capital protection oriented fund? Protection for your capital and for your money to not lose value, right? The capital market regulator, Securities and Exchange Board of India (Sebi) prohibits mutual funds from assuring capital or returns, but fund houses are allowed to devise strategies that minimise the risk of a loss. But is simply getting your money back enough? If, after having invested for 3-5 years, your fund gives nil returns, capital protection doesn’t mean much, does it? What most people are signing on for is protection of capital along with some returns, ideally more than what fixed deposits give.
Mint did a first-of-its-kind study of closed-end hybrid funds and realised that not all capital protection oriented funds outperform bank fixed deposits. Yet, at the same time, capital protection funds and fixed maturity plans (FMPs) have not given negative returns. The lowest return in our study is 3.02%, while some funds have given returns as high as 12-14%. But most funds have given returns that are lower than 6%.
