Launched with much fanfare in 2007, the aim of Capital Protection Funds was to provide the benefit of equity investment while at the same time ensuring that the downside due to such exposure was nil or at least greatly minimised. Since these funds are not permitted to offer a guaranteed return, ‘capital protection’ is more of a goal rather than an obligation. Being closed-ended, they generally work for those who get in at the new fund offer (NFO) stage and hold on till maturity.
Looking at six funds that have matured (see table), it is notable that they all managed to protect the capital, at least. But returns have been far from impressive. The equity allocation (20-25%) is meant to boost the overall return but the stock market has played a spoilsport and all returns have been generated by the fixed income part of the portfolio. Also, the outlook for these funds remains bleak. The biggest of them all, Birla Sun Life Capital Protection Oriented Series 1, with assets of Rs 704 crore, is due for redemption this month. Unless the equity market turns around dramatically, it is sure to disappoint investors. The net asset value (NAV) of the fund as on June 5, 2012 was Rs 11.12. The poor performance is probably why investors avoid such funds. In all, 53 funds together have just about Rs 5,300 crore in assets.