How it works
Investors will have to invest in the Edelweiss Absolute Return Fund (ARF). The amount could be either Rs 25,000, Rs 50,000, Rs 1 lakh or Rs 2.50 lakh. This amount stays in the fund and gets transferred to an equity fund only when the Nifty falls.
When the Nifty falls by either 1, 2 or 3 per cent from its previous level, 10 per cent of the initial investment amount is channelized into a receiving fund of the investor’s choice - Edelweiss Select Midcap, Edelweiss Diversified Growth Equity Top 100 (E.D.G.E. Top 100) or Edelweiss ELSS. The investor will be informed about the transaction through the latest account statement.
Our view
The investor has ample flexibility to make decisions. He decides the amount that will go into Edelweiss ARF, from four options. He also fixes the trigger that will result in the switch to the recipient fund. The good part is that he does not have the bother of monitoring the fall, it is done automatically once the trigger is selected. So when the market is falling, more units are purchased. On the other hand, in an upward market, there is no investment taking place. So if the market is gradually moving upward, the investor would not be buying at all under this process.
For this reason, it would not be technically correct to refer to this process as an SIP in the true sense of the word. The purpose of SIP is to introduce discipline and continuity in the investment process over all market cycles, something that does not happen here. In this instance, a lumpsum investment is done and the money is then channelized into an equity fund depending on the Nifty’s fall.
Finally, investors will have to take a call depending on whether or not they want to invest in the schemes of Edelweiss Mutual Fund.
Edelweiss ARF has one prime aim: to lower volatility to a quarter or a third of the Indian stock market. Last year, it was the best performer in its ‘Hybrid: Equity oriented’ category. This is a good investment for those who would like an equity product that is less volatile compared to the other components of their portfolio.
Edelweiss ELSS and E.D.G.E. Top 100 have not completed three years and hence are currently not rated. Both were average performers in 2010 but top quartile in 2011. Edelweiss Select Midcap has not even completed six months of existence.
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