NFO of Reliance Capital Builder Fund III – Series A for high risk takers

MUMBAI: Relaince Capital Builder Fund III – Series A is a 3 year close end fund, which will invest 80% of the corpus in midcap stocks and the balance 20% in three yearlong call options of the Nifty. The Minimum investment amount is Rs 5000 and the NFO closes on June 24, 2015.

Hypothetically, if the fund invests Rs 100 in stocks and Nifty calls and if the index moves up 50% in a year, the Rs 80 invested in the cash market would be worth Rs 120, while the Rs 20 invested in the Nifty call option would be worth Rs 50.

Thus, the value of the initial investment of Rs 100 would be Rs 170 instead of Rs 150 in a plain equity schemes, thereby giving an extra 20% return. While the upside depends on the up-move in the option, the downside is limited to the option premium paid.

If the market remains static at the end of the fund tenure, the value of Rs 20 invested through options would become zero, while the Rs 80 invested in the cash market would remain Rs 80. Thus, Rs 100 invested in such a scenario would be worth Rs 80, a loss of 20%. In case, the Nifty falls by 20%, the value of the call option would be zero, while the amount invested in the cash market would be worth Rs 64. Thus, Rs 100 would be worth only Rs 64, a loss of 36%.
As per distributors this NFO is for high risk takers. "Investors with a high risk appetite having a positive view on equities as an asset class for the next three years could use such products to maximise returns," says Anup Bhaiya, MD and CEO, Money Honey Financial Services.