ICICI Pru FMP Series good for risk averse

Although Citi and Merrill Lynch were the first financial institutions to introduce the concept of ‘Equity Linked Debentures’ in India (to their wealthy clients), ICICI Prudential is the first mutual fund house to bring this idea within the reach of retail investors.

ICICI will invest the largest part of this FMP in equity linked debentures, bonds whose periodic interest payments (called coupons) are linked to Nifty index. So if Nifty rises 50% in the year, the issuer of these bonds (mostly high profile corporates) will pay 50% of the investments as interest, to the fund that year.

However, the best part of such a structure is that, just in case the equity market goes down (Nifty falls), then you can remain worry free as the initial amount invested stays unaffected. ICICI’s new FMP is ideally suited for debutant investors in stockmarkets, due to the lower risk involved.

Those who have made good profits from earlier investments and do not want to risk their profits further, should also find the product attractive. The only caveat being that the fund is closed ended and half yearly exits will invite penalties as high as 5% of the corpus.

Besides it will be taxed like a debt fund, so profits booked beyond a year will invite capital gains tax of 10%, reducing gains. The new fund offer closes on February 8.