Skip to main content

Risk-averse investors can fancy Capital Protection Funds

THE term ‘risk’ is slowly finding its way back into investor lexicon. This is evident from the rising demand for capital-protection products offered by brokerage houses in their portfolio management schemes (PMS). Of several such products, the one which uses bonds and the recently introduced long-dated options, is the most sought after for now.


What differentiates this capital-protection product from others is the use of long-dated options, that Sebi introduced in January this year. The product has been structured in such a way that a major chunk of an investor’s capital is put into highly-rated bonds, while the rest is used to buy Nifty call options, which expire 1-3 years from now.


So, for instance, if a client puts in Rs 100 into such a product, the fund manager of the PMS would invest, say, Rs 90 in bonds at a fixed interest rate to protect the capital. Rest of the money is used to buy (pay the premium for) a long-dated Nifty call or put that expire in 2009, 2010 or 2011.


It is learnt that majority of fund managers are buying long-dated Nifty calls, mostly in 2011, an indication that they expect the bull rally to resume by 2011. When an investor buys a call option, he expects the market to rise. The advantage of buying options is that the risk of losing money is limited to the premium paid.


By using long-dated options, an investor takes a longer-term bet on the direction of the market, which helps him ignore short-term losses. Here, the investor does not need to roll over his positions every month or quarter, thereby saving on rollover costs.


The gaining acceptance of this capital-protection product is driving activity in long-dated options. Industry officials said PMS arms of ICICI Prudential Asset Management, Kotak Securities PMS and Emkay Shares and Stockbrokers are among the few, which are offering such products. This could not be individually verified with these players. But, some in the industry said the existing market conditions have made it difficult for them to sell this product to potential clients.


When we approach clients with such a product, the product is designed in such a way to suit market conditions at this moment. When the client finally approves to buy it, the situation might have changed

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

Dynamic Bond Funds

Invest Mutual Funds Online Download Mutual Fund Application Forms Apart from liquidity and returns, tax efficiency is another factor which should be taken into account for such investments. Today, while you're getting decent, predictable returns from bank fixed deposits, they, along with FMPs, can be ruled out as options because of the lack of interim liquidity. Hence, the only other option that you have is a dynamic bond fund. While investments in dynamic bond funds can be a compromise in terms of returns, they are extremely liquid and more tax efficient.   Some of the dynamic bond funds that you can invest in are: UTI Bond Fund, Birla Sun Life Dynamic Bond Fund Templeton India Income Fund ------------------------------------- Invest Mutual Funds Online Transact Mutual Fund Online   Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms   Best Performing Mutual ...

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now