High networth individuals (HNIs) will now have more options to choose from. Banks, broking houses and asset management companies are coming up with innovative products for targeting them. For example, one product offers a combination of debt and options in the CNX Nifty that can be bought either in India or abroad.
The amount that can be invested is Rs 5 lakh to Rs 5 crore. The product also has a lock-in of three years. Vikash Khemani, co-head, Edelweiss Securities, said: “We have structured this product for investors willing to take exposure to other asset classes like gold, but with limited risks.”
The product functions like this. The fund manager invests 80 per cent of the money in three-year fixed income bonds like government securities or AAA-rated bonds. The rest is used to buy gold options in overseas markets, with regular churning.
Typically, fixed income securities give around 20 per cent returns for a period of three years. So, 80 per cent of the amount invested in debt instruments will give 20 per cent returns, protecting your initial investment.
Gold gives the spike
The additional gains come from gold options. Depending on the price at which you invest, real returns on the gold portfolio over three years may range between 30 per cent and 50 per cent (going by past experience) or more. As a result, the total return on the hybrid product will be 12-15 per cent per annum.
There are also options where a person can opt for higher exposure to gold. In this case, the capital protection option is diluted to that extent. For instance, Edelweiss Securities has launched a series of such products, with different proportions of diversification.
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In the 80-debt, 20-gold options model, the loss, if any, will take place in the gold portfolio. But, the initial investment is protected because of the high debt exposure.
Even retail investors can participate in such products now. Canara Robeco Mutual Fund is planning to launch a product which will invest both in debt-oriented products and gold. The fund house plans to invest a minimum of 65 per cent in fixed-income securities. It will invest a fixed 10 per cent of the amount in gold, which will be increased to a maximum of 35 per cent.
Ritesh Jain, head (fixed income), Canara Robeco Mutual Fund, said, “An investor’s portfolio will be churned depending on gold prices.” Canara Robeco is bullish on gold and its fund will invest in gold exchange-traded funds, which are fairly liquid.
Ved Prakash Arya, managing director, Milestone Capital Advisors, said, “We think silver, gold and gold-linked products are attractive avenues for medium- and long-term investors who are looking for capital protection as well as profits from the market upside. Gold-linked hybrid products are non-convertible debentures where the rate of interest is linked to spot gold prices. It helps protect capital and also gains from the upside in equity markets,” said Arya.
With the stock market going nowhere for over six months, investors have been seeking options that can give them both decent returns and capital gains. Keeping this in mind, in recent months, these innovative hybrid products are been in demand. However, remember that such products are meant for portfolio diversification and should not be part of your core portfolio. They are mostly a good hedge against sharp downslide in equities.