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In the Garb of Protection

Capital Protection Oriented funds don't actually guarantee capital protection & investors haven't fallen for them

Safety and security are the two topmost factors that investors look for when investing in mutual funds. On their part, AMCs launched the Capital Protection Oriented funds, which do not guarantee capital protection, which is why they are named so. Given the state of the markets in the past few years, investors have flocked to invest in these schemes.

The number of NFOs (new fund offer) with capital protection has increased with 78 launched in the past three years. And the assets under management gathered by these funds in the past three years is ₹5839 crore, while the total assets under this category of funds stood at ₹6,711.37 crore as on Dec 31, 2013 across a total of 71 fund schemes.

However, the performance of these funds has been rather unimpressive, with most funds in this category posting less than 8 per cent returns, which when adjusted to inflation posts negative real returns. Likewise, the average returns of schemes which matured in 2013 was 6.26 per cent, those that matured in 2012 was 5.44 per cent and this year so far (YTD) these funds have posted 7.53 per cent returns.

Given the fact that the highest a scheme posted was 10.54 per cent for a fund scheme that matured after Jan, 2012, there is little to encourage investments in the schemes, despite the rise in the launch of such schemes in 2013. If you are looking at safety from investments, you could instead look for debt funds.

SAFETY IN NUMBERS

20092010201120122013
Existing schemes1213425871
New schemes launched07302226
Assets of new schemes (₹crore)1359239015381910