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

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Read more

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Read more

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Read more

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more
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