with much fanfare a few months ago, the capital protection schemes launched by
mutual funds have hit a regulatory hurdle. CNBC-TV18 reports.
than 35 mutual fund schemes have been rated by CRISIL for the launch of the capital
protection funds. But only five have hit the markets to date. The reason for this
being that the regulator does not want aggressive portfolio structures and ''capital
is averse to structures called capital protection that have higher exposure to
equity and require constant monitoring.
capital protection funds invest up to 20 per cent in equity but some funds want
to go higher than that depending on market conditions. And this does not go down
well with the regulator.
of the 28 funds that are yet to be launched, 10 are reworking their draft offer
documents. SEBI says they will have to remove the word ''protection'' from their
funds in case of riskier product structures.
Sitaram, Head, fund services and fixed income, CRISIL, said, "It''s difficult
to convince the regulator about the robustness of your structure, of your monitoring
aspects. So what happens is if in such structures, which have a large equity content
at the beginning, if equity markets fall, as per the structure, you will have
to shift large proportions to debt. But if the fund house at its end is not closely
monitoring it and wakes up two - three days later in which time equity markets
have sharply fallen, then the final objective may not be met."
funds say, as of now, the capital protection funds are no different from the monthly
income plans they already have in the market. They feel flexibility of high allocation
to equity is a must to ensure higher returns.
houses say modification in product structure can offer better value for money
to risk-averse investors. They also argue that insurance companies have the go
ahead to offer capital protection schemes and this puts them at a disadvantage.
It remains to be seen whether the regulator will relent.