In a move that will help the beleaguered investors in capital protection funds (CPFs) to exit them, asset management companies are planning to list CPFs on the stock exchanges.
CPFs are close-ended funds, which were launched in India in October 2006 with the intention of roping in investors, who would like to make small, yet safe returns from the stock market.
However, over the last year, these funds have performed rather dismally, thereby resulting in anguish for the investors. Sample these for numbers: the annual returns of four funds that are available read like this.
Franklin Templeton Capital Safety, three and five year lock-in funds have returned 10.22 and 10.93 per cent respectively.
Similarly, UTI Capital Protection Oriented three and five year funds have given even lower returns of 9.14 and 9.65 per cent respectively. Others who have similar funds include Birla Sun Life, DWS, SBI and Sundaram BNP Paribas.
More From This Section
Given the low returns, fund houses are looking to give investors an exit route in the days to come. An official from Birla Sun Life said on condition of anonymity: "We are planning to list our capital protection funds in the next six months."
K Ramkumar, head, fixed income, Sundaram BNP Paribas too admits that their fund will be listed on the stock exchange soon. Most funds are planning to list their five year tenure funds.
So how do these funds function? The main intention of these funds is to protect the basic capital that has been invested. So most of the asset under management is invested in debt instruments and only, between 10-30 per cent in equities.
The funds work with the principle that majority of the money invested in debt will ensure that the growth is in such a manner that that there is no erosion of the invested capital.
For instance, if you invest say Rs 10,000 in a fund with five year maturity period. Now the fund manager allocated 70 per cent (Rs 7,000) in debt and the rest in equity in such a manner that the Rs 7,000 invested in debt will grow to Rs 10,000 in five years. The return from equity investments will be a bonus for investor.
These funds also charge an expense ratio of between 1 and 1.5 per cent depending on the maturity period. "This is because the equity portion of the fund is actively managed," says Ramkumar. Also, the equity investments are mostly in large-caps or mid-caps.
Fund managers confess that even during the new fund offering (NFO) period, these funds received a very lukewarm response, forcing many other funds to postpone their plans.
Says Parijat Agarwal, head, fixed income, SBI Mutual Fund, "The investors in these funds were investors who are mostly investing in fixed deposits (FDs). Most of them were looking at schemes that would be safe and give returns higher than FDs. Lack of liquidity lead to a lukewarm response for these funds."
SBI is also in the process of listing their CPFs. Though fund managers say that the returns are at par with monthly income plans (MIPs), the malaise with CPFs is that they are not open ended, thereby making them unattractive to the consumers.
Most market experts say that these funds will trade at a discount once they are listed. "Most of the close-ended schemes trade at discounts of at least 20