Capital protection schemes form Mutual Funds

ASSET management companies (AMCs) have lined up capital protection-oriented funds for the risk-averse investors who want to protect investments from market volatility.

Capital protection-oriented schemes are one of the fastest growing categories in the industry that has grown three times on a year-on-year (y-o-y) basis to Rs 9,600 crore as on June 30, from Rs 3,000 crore in June 2011, according to industry officials.

These schemes, however, do not legally guarantee protection of capital and similar to debt-oriented balanced sch emes can deliver negative returns.

ICICI Mutual Fund and Sundaram Mutual Fund have filed the offer documents for approval with the Securities and Exchange Board of India (Sebi), while Birla Sun Life's Capital Protection Oriented Fund is open for subscription from August 14 to August 28.

In the past two years, Reliance Capital Asset Management (RCAM) has launched 12 dual advantage fixed tenure funds with different durations (two to five years). RCAM's Dual Advantage Fund is a capital protection fund, a fixed-tenure, close-ended hybrid fund, that seeks to offer stability of fixed income while combining the likely upside potential of equity markets.

It has been the recent attraction among the mutual fund investors, especially in the present volatile market scenario.

Capital protection funds expect to achieve downside protection by investing in debt securities maturing on or before the duration of the scheme, subject to the credit risk and market-linked appreciation by investing in equities. For potential upside, some schemes are also investing in premium of exchange-traded options. The debt equity ratio in these schemes varies from 60 to 80 per cent exposure to debt and 20 to 30 per cent exposure to equity.

ICICI Prudential Capital Protection Oriented Fund III expects to achieve the market-linked appreciation by investing in premium of exchange-traded options, the offer document filed with Sebi said.

Sundaram Asset Management has filed draft offer document with Sebi for renewal of their capital protection funds of two, three and five years tenures, Sunil Subramaniam, directorsales and marketing, Sundaram Asset Management, said.

Some of the best performing capital protection schemes include Reliance Dual Advantage Fund's four series (March, April, May, June series) launched between March 2011 and June 2011, which have given oneyear return of 11.23 per cent, 10.70 per cent, 10.28 per cent and 10.25 per cent, respectively.

The capital protection schemes are close ended and are listed on the stock exchanges, enabling an exit before the scheme matures