Capital protection fundsSBI Mutual Fund has floated a hybrid, close ended fund SBI Capital Protection Oriented Fund-Series A (Plan 2). The NFO opened for subscription on 11th March 2019 and will close on 25th March 2019. The tenure of this scheme will be 1,265 days.

Being a capital protection oriented fund, the primary mandate of this scheme is to protect investors’ capital by investing in high quality fixed income securities that are maturing on or before the maturity of the scheme. This fund seeks to protect capital by means of debt allocation and generate capital appreciation by investing in equity and equity related instruments.

This scheme falls under conservative hybrid category. There are a total of 150 funds in the conservative hybrid category having total AUM of Rs 33154.35 crore. SBI Dual Advantage Fund Series XXII – Regular Plan is the largest fund in the category with AUM over Rs 2800 crore and ICICI Prudential Multiple Yield Fund – Series 3 – Plan D has the lowest AUM of Rs 0.53 crore.

Conservative Hybrid category has delivered 3.98% returns on 1 year basis (as on 8th March 19) and CAGR returns of 8.35% over a 3-year period. ICICI Prudential Multiple Yield Fund – Series 10 – 1825 Days – Plan B is the top performing fund over 1 year period with 8.5% return and UTI Dual Advantage Fixed Term Fund Series II-III (1998 Days) is top performer over three year period with CAGR returns of 8.97%.

Asset Allocation and Strategy

Under normal circumstances, the asset allocation of the Scheme would be as follows:

Instruments Indicative allocations (% of total assets) Risk Profile
Debt instruments (including debt derivatives) and Money market instruments (including Triparty Repo, Reverse repo) 80-100% Low to medium
Equity and equity related instruments (including derivatives and ETFs) 0-20% High

SBI Capital Protection Oriented Fund-Series A (Plan 2) is benchmarked against CRISIL Hybrid 85+15 Conservative Index. The main objective of this index is to tracking performance of a debt-oriented hybrid portfolio having a blend of the S&P BSE 200 TRI (15%) and CRISIL Composite Bond Fund Index (85%).

The CRISIL Hybrid 85+15 Conservative Index has delivered 6.27% returns over 1-year period and 9.14% over 3-year period as on 28th February 2019.

Even if the probability of double-digit growth is low, the unique selling proposition of this product is assured capital protection. While allocating the assets, the fund house will consider the YTM (Yield To Maturity) offered by fixed income instruments and calculate post expense gains for the tenure of this fund. The debt allocation considered for above calculation must return the invested capital at the end of tenure and post providing for expenses. For example, if the current YTM is 8%, approximately 85% of the assets will be invested in debt securities for protecting the capital considering annual expense of 2.5% is charged. If the current YTM is 9%, approximately 83% of your investments will be parked in debt and rest will go in equity.

The fund will be jointly managed by Rajeev Radhakrishnan (Debt) and Ruchit Mehta (Equity).

Radhakrishnan has total 17 years of experience in fund management and manages several other funds at SBI MF like SBI Magnum Ultra Short Duration Fund, SBI Magnum Children Benefit Fund, SBI Short Term Debt Fund, SBI Magnum Low Duration Fund, SBI Banking and PSU Fund, debt portion of SBI Dual Advantage Fund Series and the existing SBI Debt Fund Series launched till October 4, 2016.

Mehta has total 14 years of experience as a research analyst. He is managing SBI Magnum Equity ESG Fund, equity portion of SBI Debt Hybrid Fund, equity & debt portion of SBI Equity Savings Fund and SBI Dual Advantage Fund Series.

Tax Impact

As the scheme invests minimum 80% of its assets in debt instruments it will be eligible for Long Term Capital Gains tax of 20% with indexation benefits if held for more than three years. Since the investment tenure of SBI Capital Protection Oriented Fund is almost 3.5 years, the fund will mature around August 2022 thus it will be eligible for 4-year indexation benefits.

Key features of the Fund:

  • NFO Period – 11th March 2019 to 25th March 2019
  • Type of Scheme – A close ended Capital Protection oriented fund for medium to long term
  • Tenure of the Scheme – 1265 Days
  • Benchmark – CRISIL Hybrid 85+15 – Conservative Index
  • Min Application Amount – 5,000/- per application and in multiples of Rs 1/- thereafter
  • Plans and options – Regular & Direct Plans Under Which Growth Option is offered.
  • Entry/Exit Load – Nil
  • Risk Profile – Moderately Low Risk
  • Investor Suitability – This product is suitable for investors who are seeking
    • A close-ended Capital Protection oriented fund for medium to long term.
    • Investment in fixed income instruments to protect capital and investment in equity and equity related instruments for capital appreciation.

Rupeeiq Take: Currently in Indian economy interest rates are expected to drop owing to low inflation and slow growth. At the same time, equity markets look to be recovering and if not recovering the valuations seem cheap thanks to the rerating that happened in the past year. Thus, it’s an opportune time for investors to consider products like capital protection fund. The only catch is fixed lock in period. If equity markets are volatile at the time of maturity, your gains might get impacted but the capital would remain intact. This product is suitable for very conservative investors who are used to bank fixed deposits. If you have a little higher risk appetite, you may consider open ended conservative hybrid products which don’t offer capital protection but provide you with liquidity.

Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com