ICICI-Pru to launch first FMP for retail investors

Following the success of foreign banks led by Citicorp Finance, DSP-Merrill Lynch and Barclays Group in selling bonds linked to the Nifty to wealthy Indians, India's second largest mutual fund house ICICI-Prudential is offering a similar product to the retail investors.

"ICICI Prudential's equity-linked Fixed Maturity Plan (FMP) endeavours to couple the best features of equity and FMP. The most striking feature of equity is its growth potential and the most salient feature of 'FMP' is its structure of downside protection. We hope to achieve the twin objective through the product," said Nilesh Shah, deputy managing director & CEO of ICICI-Prudential in an interview.

ICICI's product was India's first equity-linked FMP, according to Shah. Traditional equity mutual funds offer investment solutions that generally provide market-linked returns when the equity market goes up and negative returns when the market falls.

"Conventional investors fear a loss of money when the equity markets go down. This fear is further strengthened when they evaluate data on Nifty's past performance. Over a three-year period, Nifty has given negative returns in one out of four days (since inception in July 1990 till November 2007). When the Nifty has ended positive, it has given an average CAGR of 17.43 per cent, which is much higher than the returns from any other regulated investment avenue," Shah explained.

This product would have ideally protected investors from wealth erosion in the recent crash, he added. "The equity-linked FMP brings an investment solution that offers risk-managed returns. This kind of product is popular among HNI clients of foreign banks. The minimum ticket size for the product being offered by foreign banks is Rs 10 lakh and above.

"The investors profit when the Nifty goes up. If the Nifty goes down, the fund is designed such that investors do not lose their initial corpus. That is the beauty of the product," said Shah.