Product Isn't As Liquid As Fixed Deposits, Exit Is Only Through Stock Exchange Where Liquidity Is Uncertain
THERE is a class of investors who are unhappy with fixed deposit rates but do not want to take chances with their capital. It is keeping such investors in mind that IDFC Mutual Fund has launched the first in its series of capital protection-oriented funds. These funds allow a conservative investor to participate in equity markets, while at the same time the asset allocation is such that investor capital is protected at all times.
THE FUND
IDFC Capital Protection Oriented Fund (Series 1) is a closed-ended mutual fund that seeks to protect capital by investing in high-quality fixed income instruments which mature at the same time as the scheme. It will also seek capital appreciation by investing in equity and equity-related instruments. The tenure of the fund is 36 months.
INVESTMENT STRATEGY
The fund manager will invest between 84% and 100% of the invested funds in highquality debt instruments. This investment will grow over 36 months of the total initial investment you made in the fund at the time of its inception. The remaining 0-16% of amount will be invested in equities. The strategy ensures that you get your capital back whatever happens with equity investments. This way the fund aims to offer you an opportunity to invest in equities without risking your entire investment.
TARGET AUDIENCE
Clearly, the target is traditional fixed income investors. The only difference between a fixed deposit and such a fund is that returns on fixed deposit are known to investors at the time of investing. However, in case of this fund, the returns are not known in advance, though investors can expect a return of capital.
TAXATION
On the taxation aspect, the fund is a sure shot winner. The fund scores over a fixed deposit as the returns earned in this product are taxed at lower of 10.3% without indexation, or 20.6% with indexation like a debt mutual fund, whereas the fixed deposit returns are taxed at 30.9%.
SAFETY
The fund is rated AAA (SO) by CRISIL. The rating only indicates highest degree of certainty regarding payment of face value of investment to unit holders on the maturity. The rating does not indicate any stability of NAV before maturity. A point to note is that the rating is not a guarantee that investors will get their money back.
FUND DETAILS
The minimum investment has been fixed at Rs 5,000. The scheme has growth and dividend options. Benchmark for the scheme is CRISIL MIP blended index. Ashwin Patni is the fund manager to the scheme. There is no entry or exit load. The scheme being a closed-ended scheme, the only exit is through the stock exchange where liquidity is low. As such, there is no guaranteed exit at NAV before the maturity date. The new fund offer closes on March 24, 2010.
WHY INVEST:
To invest in equities to earn higher returns over traditional fixed deposits without risking your capital.
WHY NOT INVEST:
The product is illiquid. Being close-ended structure, it reduces the probability of exit at NAV since the only exit is through stock exchange, where liquidity is uncertain.
