Capital protection oriented funds: What they are
What's the story
Capital protection oriented funds are a safe bet for investors looking to keep their principal intact while earning some returns. These hybrid funds invest a major part of their corpus in debt instruments, while the remaining is invested in equities. This way, they provide capital safety and a chance of capital appreciation. Here's a look at the basics of these funds, and how to invest in them.
#1
Understanding Capital Protection Oriented Funds
Capital protection oriented funds are hybrid mutual funds that aim to protect the investor's capital. They invest a major portion of their assets in fixed-income securities like government bonds or corporate debt, which provide stable returns. The remaining portion is invested in equities for potential growth. These funds are usually structured as close-ended schemes with a fixed tenure.
#2
How they work
The working of capital protection oriented funds is pretty simple. The fund manager allocates a major chunk of the money to safe debt instruments that guarantee the principal at maturity. The rest is invested in stocks for potential growth. The returns are usually higher than traditional fixed deposits, but lower than pure equity investments.
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Benefits of investing
One of the biggest advantages of capital protection oriented funds is the dual benefit of safety and growth potential. They are ideal for conservative investors who want to avoid risks but also want to earn more than inflation. These funds also come with lower volatility than pure equity funds, making them suitable for risk-averse investors.
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Factors to consider before investing
Before investing in capital protection oriented funds, consider factors such as investment horizon and risk appetite. These funds generally have a lock-in period, so ensure you can commit your money for that long. Also, check the expense ratio and historical performance of the fund to make an informed decision.