Although it has been seen that there is lower risk in long term equity investing, majority of people still invest only in fixed return products due to the fear of losing their initial investment amount.
With this thought in mind, mutual funds have been launching a number of capital protection oriented schemes recently. The chief objective of such schemes is to protect the investor's capital and at the same time generate capital appreciation by investing in equity and equity related instruments.
The latest to join the bandwagon is UTI Mutual Fund with its new fund - UTI Capital Protection Oriented Scheme, a close ended scheme that endeavors to protect the capital by investing in high quality fixed income securities as the primary objective and generate capital appreciation by investing in equity and equity related instruments as secondary objective. The scheme offers a 3-year and a 5-year plan.
Amandeep Chopra, Fund Manager, UTI Capital Protection Oriented Scheme says, "This product is aimed at that vast majority of people, who never invest in equity markets at all. The product could enable them to earn a higher tax efficient return compared to fixed rate products in the case of an upswing, in the equity markets."
Experts are optimistic about the close-ended nature of the scheme, as they believe that this would allow the fund manager to take relatively long-term calls. "Being close-ended, even the debt portion may perform better as the fund manager will be able to invest money at higher yields on the lines of a Fixed Maturity Plan (FMP) and also reduce the interest rate risk," added advisor Hemant Rustagi.
Who can invest in the scheme?
Investment expert Sandeep Shanbhag says, "As these are defensive schemes, they will be more suited to investors who have a lesser appetite for risk. Even for an aggressive investor, the scheme can act as a hedge in the portfolio, and will prove useful when markets show a downward trend."
How much returns to expect?
"The Benchmark index of this scheme is the Crisil MIP Blended Index and as such return expectation from schemes of this structure would be more in lines of a well to do Monthly Income Plans (MIP)," says Shanbhag.
However, fund manager Amandeep Chopra says: "The 3 year / 5 year plans have a maximum equity allocation of 20% and 30% respectively. The Crisil MIP Blended index has a maximum equity of 15%. In case of a favourable movement in equity markets over the plan period, the level of out performance could be significantly higher."
To Sum:
While UTI Capital Protection Oriented Scheme is ideally suited for those investors for whom protecting capital is a top priority, experts highlight that for someone who is willing to lock-in money for three or five years, higher exposure to equities can not only improve the chances of earning better returns but also reduce the risk that is normally associated with equity investing.
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