Birla Sunlife Capital Protection Fund: A better bet over FDs

As we approach Budget 2010, there is optimism because of improved prospects for the economy at the domestic level. Yet at the international level, there are concerns, which include a possible sovereign default in Europe which could cause collateral damage in markets across the world.

While no one is in doubt about the long-term potential of Indian markets, it is also certain that there will be volatility. Birla Sunlife mutual fund, with its latest offering, is attempting to target short-term investors who want to ride the growth but protect their capital from short-term volatilities.

The Fund

Birla Sunlife Capital Protection Oriented Fund (series 1) is a close-ended mutual fund that seeks to protect the capital by investing in high quality fixed income instruments maturing in line with the tenure of the scheme and seeking capital appreciation by investing in equity and equity-related instruments. The fund tenure is 27 months.

Investment strategy

The fund manager will invest almost 90% of invested money in high quality debt instruments. This investment will be in such a manner that the maturity value will be more than 100% of the total investment at inception. The remaining 10% amount will be invested in shares of reputed Indian companies.

The strategy ensures that you get your capital back, irrespective of stock market conditions. This way the fund aims to offer you an opportunity to invest in equities without risking your entire investment.

Who should invest

The product is an attractive option for the traditional fixed income investor. But unlike fixed deposits, the investor does not have a definite idea on the returns. However, it is most certain. However, unlike most other mutual fund schemes, the capital is not at risk.

Taxation

The fund scores over fixed deposit as the returns earned in this product are taxed at lower rate of 10.3% without indexation, or 20.6% with indexation like a debt mutual fund, whereas the fixed deposit returns are taxed at 30.9%.

Safety

The fund is rated AAA (SO) by CRISIL. The rating only indicates highest degree of certainty regarding payment of face value of investment to unit holders on the maturity. The rating does not indicate any stability of NAV before maturity. A point to note is that the rating is not a guarantee that investors will get their money back.

Highlights

The minimum amount that can be invested in this scheme is Rs 5,000. The scheme offers only a growth option. The fund managers will benchmark the fund’s performance against CRISIL MIP-blended index. Satyabrata Mohanty is the fund manager to the scheme. There is no entry and exit load. The scheme being a closed-ended scheme, the fund house will not entertain any exits in the currency of the scheme.

However, to facilitate liquidity, the units are listed on stock exchanges. Investors get to exit on the stock exchange at the market price and there is no guaranteed exit at NAV before the maturity date. Investors can sell their units on stock exchanges, if need be. The new fund offer closes on March 5, 2010.