Birla Sun Life Mutual Fund, the fifth largest fund house in terms of assets managed, has launched equity-linked fixed maturity plans, first of its kind in the domestic mutual fund industry.
The scheme is structured in such as way that investors could make a profit, if the market goes up while they lose nothing if the market goes down. Though foreign banks have been offering similar products to high net worth investors (HNIs), this is the first time such products are being offered to retail investors.
“The product will receive the original investment plus a certain rate of return depending on market conditions. These schemes invest in short-term and medium-term debt instruments and equity-linked debentures with floating and/or fixed returns linked to equity indices,” said Bhavdeep Bhatt, head of products at Birla Sun Life Mutual Fund.
The product is ideal for the current volatile market, said Bhatt, pointing out that the fund house believes the “structural bull-run is in place”.
The mutual fund scheme has risk close to an FMP and returns close to equity. The funds would be invested in equity-linked debenture (ELD) schemes offered by foreign banks such as DSP-Merrill Lynch, Barclays and Citibank. An ELD provides investors fixed income-like principal protection together with equity market upside participation. Birla Sun Life Mutual Fund is offering two products under the equity-linked FMP; one is a
36-month product and another is a 21-month product.
“You could be at a no-loss situation at the end of 36 months. If the Nifty falls, your capital remains intact. If the market rises up to 100 per cent, you get up to 1.5 times the percentage rise of the market. If the market increases beyond 100 per cent, you get a flat return of 60-65 per cent,” said Bhatt.
"The investor is able to get only a flat return (when the market rises beyond 100 per cent) as the scheme is hedged for a downside protection," said A Balasubramanian, chief investment officer at Birla Sun Life Mutual Fund.