Prajna Capital - An Investment Guide

At a time when the equity markets are in choppy and interest rates are stabilizing, it is natural for investors to gravitate towards debt instruments. At the same time, there are a few who believe that the market has bottomed out. So neither do they want to miss on the upside, should the market take a U-turn. The AMCs have found a way out by introducing equity-linked fixed maturity plans ( FMPs ), which will invest in equity-linked debentures. Unlike a normal debenture, where the interest rate ( coupon rate ) is fixed, in these debentures, the interest rate depends on an underlying basket of stocks. These stocks could be a select few chosen by the fund manager or it could be an index. Depending on the performance of the stocks, the return on the debenture is fixed. So how is this figure arrived at? Simply by looking at the Participation Ratio. Let's say that the debenture is linked to the Sensex at a 100 per cent Participation Ratio . Should the Sensex rise by 10 per cent, then th...