Skip to main content

Capital Protection Oriented Funds

 

Capital Protection Oriented Funds



Choosing between equity and debt is a difficult task for most investors.
To avoid this problem, one must invest on the basis of one's risk-return profile, age, investment tenure and market conditions. However, if you are among those who do not want the trouble of investing in a basket of products that needs to be rebalanced at regular intervals, you can opt for hybrid or
Capital Protection-Oriented Funds (CPOFs).

Let us first understand what CPOFs and hybrid funds are...

How CPOFs work Investors are easily attracted to any investment avenue which has "capital protection" as it indicates safety.
However, this should not be confused with "capital guarantee". The best way to understand CPOFs is through an example. Let's say a CPOF is floated for a three-year period and 80% of the funds are locked in a three-year debt instrument. So, for every Rs 100 invested, Rs 80 would earn a simple interest of say 9% per annum. Accordingly that Rs 80 would become Rs 101.60 in three years. The balance Rs 20 would be invested in equity .

Now, even if the value of this Rs 20 drops by 25% and becomes Rs 15 at the end of three years, the total investment of Rs 100 would have become Rs 116.60. This translates into a simple annual return of 5.53%. So your own money is used to protect your capital. These are nothing but hybrid schemes which create a sense of security for investors who do not like to see volatility in their returns during the period of investment.


Suitability: It is suitable for investors who generally have a low risk appetite and are also comfortable with the lock-in tenure.


Taxation: These funds are taxed as debt funds, that is long-term capital gains tax applicable to these funds is 10% without indexation or 20% with indexation, whichever is less. Short-term capital gains do not arise as these funds are typically closed ended for three-five years.


Hybrids: Mixed asset allocation Hybrid funds, as the name suggests, have a mixed asset allocation pattern, typically investing in some amount of debt and equity . Lately, a few funds have also started adding gold as an asset class.

Hybrid funds can be typically put into two categories, that is `Equity-oriented' and `Debt-oriented'. Due to the inherent nature of taxation laws, most equity-oriented funds tend to have an exposure of 65-70% towards equity and the balance towards debt. As regards debt-oriented funds, the exposure to debt is in the 65-95% range and the balance is allocated to equity .

Some fund houses targeting senior citizens have floated monthly income plans (MIPs) which are nothing but hybrid funds with debt components ranging between 80% and 95%, with the objective of declaring a monthly dividend so that the investor gets a regular cash flow every month. Where gold has been added as an asset class, the allocation is typically 33% towards each asset class.


Suitability: These are suitable for investors who do not undertake an asset allocation exercise on their own, investors with low to medium risk appetite and investors looking at regular income.


Taxation: Equity-oriented funds (with more than 65% of the portfolio into equities) qualify for the same tax treatment as equity funds, that is short-term capital gains arising from redemption within one year are taxed at 15%, while there is no long-term capital gains tax.

Debt-oriented funds, those that predominantly invest in fixed income instruments, are taxed like debt mutual funds, where short-term capital gains are taxed according to the investor's tax slab while long-term capital gains are taxed at 10%, without indexation and 20% with indexation, whichever is less.

As far as the dividend option is concerned, dividend distribution tax (DDT) is charged at 28.33%, inclusive of surcharge and education cess for debt-oriented funds.


Thus an investor would have to factor this in before deciding which option to choose -growth or dividend.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

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...

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

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...

What are Tax savings Bank Fixed Deposits?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   These are a special type of bank fixed deposits, of five-year tenure, which allow you to have tax benefits for investments of up to Rs 1 lakh per person per financial year. Investments in these FDs give tax benefits under 80C of the Income Tax act. These are not very liquid investments because the money is locked-in for five years. One also has the option to continue the FD for another five years after the lock-in ends. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax ...

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 ...
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