Page 146 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 9: Mutual Funds

Notes

Case Study Mutual Funds Turning to Capital Protection Funds

Equity market's volatility pushes investors to other schemes.
While the equity market is rather unpredictable at this time, debt and money markets
have become a more attractive proposition for investors.

Mutual funds, capitalising on the same, are turning to capital protection funds, which
provide both the security of being invested in fixed income instruments along with the
higher-returns-potential of the equity side of investment.
UTI, SBI, Sundaram, IDFC, Franklin Templeton are some of the fund houses that have
launched capital protection funds.
"These are for investors who are conservative and prefer their investments to be in the
form of bank deposits. There is potential upside and virtually no downside to these funds.
But there is no guarantee of capital protection here," said Mr Dhirendra Kumar, Chief
Executive Officer, Value Research.
A capital protection fund is a close-ended fund which invests 80 per cent of its corpus in
fixed income securities such as corporate bond papers, government securities and other
money market instruments. The rest of its corpus - 20 per cent - will be in equities.
At the end of the fund's tenure, the capital invested is protected through returns from fixed
income securities while the returns on the investment itself would be from the equity
investments of the fund.

Capital Guarantee
"The capital guarantee is done via investments in high quality debt papers," said Mr
Dwijendra Srivastava, Head-Fixed Income, Sundaram Mutual, whose fund house plans to
launch 12 more capital protection funds in the next 16-18 months.
"Also, these funds are structured in such a manner that investors cannot exit before the end
of the tenure."
After 2008, fixed income as an asset class has become more popular with investors.

"The capital protection fund is an investor need. These funds are not meant for super HNIs
or informed investors. The fund is for those who are averse to losing capital and want to
stay invested for the long haul," said Mr Srivastava.
With redemption pressures continuing to affect the industry, it seems that fund houses are
turning to products like capital protection funds to lure investors and to ensure that they
stay invested for a longer period.
Question

Make a analysis on mutual funds investment vs. stock market investment.

Source: http://www.thehindubusinessline.in

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