Capital Protection Fund New offer – Oct 2013

Now a day Fund House Offer new funds under head Capital Protection Oriented Fund. Capital Protection Fund protect your capital, means your investment is safe. If you invest Rs.10000 then you get back  Rs.10000 guarantee. If market up or down you are not making any loss in this fund, but what about returns.

So first clear concept how CPF work.

Capital Protection Fund (CPF) and Capital Protection Oriented Fund (CPOF) is same.

Point Cover 

1. What is CPF?
2. Investment Strategy
3. Taxation
4. Limitation of CPFs
5. Current Performance Report Link (Moneycontrol)
6. My View

What is CPF?

Capital Protection oriented Fund is structural investment product that allow you to enjoy the benefit of investing in stocks without putting your principal at risk.
Capital Protection oriented fund invest big amount (70% to 80%) invest in fixed income instrument and the balance in equities.

Suppose 80% of the corpus in put AAA rated bonds offering an interest rate 8.50%. By the end of term, this debt portion would grow to the principle amount, thus insuring that the capital is protected. The remaining 20% to 30% of the money invested in equities to earn extra income.

Investment Strategy

Option base

Debt Portfolio strategy :The scheme would invest a 60 to 80% of the amount in highest rated debt & money market instrument maturing on or before the maturity of scheme.

Strategy for Option Premium Investment : The balance amount after investing in debt & money market instruments is intended to be invested in equity market through derivatives like Index Call options which could provide market linked returns.

• If market goes up, buyer has a right buy the index at a lower level & sell at the prevailing rate, thereby realizing profit
• If market goes down, the buyer loss premium paid. But maximum loss for a buyer is premium paid

If CPF corpus is 10 Cr., about  8 Cr  of that invest in fixed income instrument, which will yield  Rs. 10.30 Cr. (9% Interest) By the scheme maturity (3yrs), so that the initial investment amount is Safe or protected.

The remaining Rs 2 Cr. Will be invested in equity or equity related instruments. The investment appreciation on that amount will be the investor gain.

Taxation

CPFs are taxed like as debt funds, Long term Capital Gains are taxed  @ 10.3% without indexation or 20.6% with indexation.

Limitation of CPFs

Low Liquidity 

• Being close ended in nature, the investment is no liquid, they are listed on the stock exchange one could sell them if a buyer is available.
• The amount can be redeemed only at the end of tenure

No Guarantee for your Capital & Returns

• SEBI does not permit fund to provide any guarantee for capital protection.
• The Mutual Fund house is not liable to pay back in case of capital erosion.

If the issuers of the high quality fixed income instrument default, a scheme may show capital loss.

Current performance Report Link

Moneycontrol Capital Protection Fund Retuns

Mutual Fund investment are subject to market risk, please read all scheme related document carefully.

 Option with you

Make your own capital protection fund with below option

Option 1 :  MIP – Capital protection fund is no different  from that of Monthly Income Plans (MIP). Monthly Income Plan invest 75% to 80% of their corpus in debt instrument & balance in equities.

Option 2 : Invest all your fund in Fixed Income product  & monthly or quarterly Interest in Equity SIP. You get double benefit & you can track your returns & also liquidity available.

Option 3 : Invest 70% in Fixed Income product &  Balance in Direct Equity or Equity Mutual Fund.

New Fund offer open for subscription