Edelweiss Finvest Pvt. Ltd., an Edelweiss group company, has come out with a structured product aimed at High Net-Worth (HNW) investors. The structured product, which is more formally termed as a ‘market-linked debenture’’, will be listed on the BSE Wholesale Debt Market (WDM).
The product has been rated Principal Protection Market Linked Debenture (PP MLD) AA by Crisil and ICRA. To get an idea about structured products, you can read our reviews on previous Edelweiss structured products here and here. The latter review gives you the actual performance of a past structured product by Edelweiss.
An initial Nifty level (in this case 11,676) is fixed. If the Nifty ends the tenure of the market-linked debenture below this amount, you don’t take any loss and get your principal amount back. However, you do not get your premium back. The premium for an investment of Rs 25 lakh is Rs 25,000.
If the Nifty rallies at a rate of less than 12% CAGR or 49% absolute return, your return is higher than whatever the Nifty return is. For instance, a 1% Nifty CAGR will give you 1.59% in this market linked debenture; a 3% Nifty CAGR will give you 5.12% on the market linked debenture and so on. A 7.5% Nifty CAGR will get you a CAGR of 12% on this market linked debenture. However, if the Nifty does better than 7.5% CAGR, your gain is capped at 12% CAGR. You cannot do better than this regardless of where the Nifty goes.
Should you invest
Structured products such as this Market Linked Debenture come with the idea of giving up some upside in return for protecting your downside. They are portrayed as a good way to beat market risk and volatility, especially in an election period. However, they come riddled with charges, as you can see with the premium and 1% placement fee. Go for such a product if you have a fairly bearish view on the markets and are comfortable with its high fees and complexity. Otherwise, a plain vanilla mutual fund strategy (asset allocation between debt and equity) will get you a similar result.
A previous structured product of Edelweiss launched in February 2016 with roughly 26 months tenure had delivered a CAGR of 8.81% to investors. However, the Nifty had risen by more than twice as much in the corresponding period – delivering a CAGR of about 20%. But the difference is Nifty doesn’t have a downside protection while the structured product has even though returns are capped.
Underlying Index: Nifty 50
Minimum Investment: Rs 25,25000 (Rupees Twenty five lakhs twenty five thousand)
A placement fee (distributor fee) of 1% is also payable. This added to your initial investment and hence if you go for the minimum investment, you have to actually pay Rs 25,50,000 (Twenty five lakhs fifty thousand).
Tenure: 41 months
Downside: Zero returns. However, your capital is returned to you.
Maximum upside: 49% (Absolute Return) or 12% CAGR over the 3.41 year tenure