Table of Contents :
What are Capital Protection Funds?
A mutual fund, categorized under closed-hybrid funds, oriented towards protecting your capital from any market risk with balanced exposure to both equities and debt is known as Capital Protection Fund. Their portfolio is largely inclined towards debt securities. It invests the majority of its assets in highly rated bonds, T-Bills, certificate of deposits and other fixed-income financial vehicles that give assured returns at maturity.
Many asset management companies (AMC) in India like ICICI Prudential AMC, Axis AMC launch numerous capital protection funds frequently for investors to park their money and earn decent returns in the long run. Recently launched funds include Axis CPO Fund, ICICI Pru CPO Fund, Sundaram CPO Fund, etc.
These funds aim to mitigate risks arising out of economic downturns by focussing predominantly on fixed income securities and debt. This ensures that an investor’s investment remains protected in addition to being appreciated every year.
How Does Capital Protection Funds Work?
The accrued resources from investors are allocated to equities and debt securities. Around 80-90% of assets are invested in debt, while the remaining is allocated to equities. The amount invested in debt ensures that the principal investment of the investor is recovered at maturity. While the amount invested in equities generate returns for the investor which are generally better than those from Bank Fixed Deposits.
For instance, if an investor has invested ₹1000 in a capital protection fund, the fund manager will allocate ₹900.09 in a debt instrument that pays 10% interest at maturity. This recovers the principal investment during the tenure of the scheme. The amount left is invested in equity instruments to generate high returns and in turn, increasing the value of investment.
Characteristics of Capital Protection Funds
- Close-ended scheme
Subscription to capital protection funds can be done only during the NFO period since they’re close ended. The invested amount remains locked-in until the maturity period. Fund managers can effectively park the pooled amount in securities that provide long term returns.
Close-ended nature of these funds prevents frequent cash outflow from the fund. However, its units are traded in the secondary market by the unit holders.
- Lock-in Period
Capital Protection Funds are available for 3 different maturity periods viz. 1-year, 3-year and 5-year. Once subscribed, investors can only redeem their investment after the maturity period is over and not before that. This is why, these funds are suitable for individuals who can lock-in their money for the specified investment horizons and doesn’t need the invested amount for that period.
- Taxation Policy
The taxation rules on Capital Protection Funds are same as those applicable on debt funds. If the maturity period is 1 year or 3 year, then Short Term Capital Gains Tax is levied on capital gains which is in accordance to the income tax slab of the investor.
If the maturity period is more than 3 years, then Long Term Capital Gains, currently at 20%, is levied with the benefit of indexation.
Who Should Invest in Capital Protection Funds?
If you want to grow your investment, taking the least amount of risk, invest your money in capital protection funds. Individuals who follow a conservative investment stance, coupled with low-risk appetite should go for these funds. They help in capital appreciation in the long run along with a good sense of investment security.
Although investors should note that returns from these funds are assured, not guaranteed. To ensure that the capital invested is actually protected, Securities and Exchange Board of India (SEBI) has assigned credit rating agencies to give ratings to the fund structure of these funds and evaluate the reliability of the fund scheme to give assured returns.
List of Capital Protection Funds to Invest in 2020
| Fund Name | AUM (Cr) | Returns over 1-Year | Returns over 3-Year |
| Canara Capital Protection Oriented Fund – Series 8 – 1096D | 898.14 | 7% | – |
| Canara Capital Protection Oriented Fund – Series 7 – 1096D | 615.04 | 6% | – |
| Canara Capital Protection Oriented Fund – Series 9 – 1134D | 537.77 | 8% | – |
| ICICI Prudential Capital Protection Oriented Fund XIV – Plan A – 1275 Days | 421.86 | – | – |
| Union Capital Protection Oriented Fund – Series 7 | 344.67 | -2% | – |
| ICICI Prudential Capital Protection Oriented Fund X – Plan B – 1375 Days | 234.18 | 7% | 7% |
| Canara Capital Protection Oriented Fund – Series 10 – 1128D | 174.73 | – | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 4) | 151.02 | – | – |
| UTI Capital Protection Oriented Scheme – Series VII – IV – 1278 Days | 140.64 | 5% | 7% |
| ICICI Prudential Capital Protection Oriented Fund X – Plan A – 1235 Days | 132.26 | 6% | 7% |
| UTI Capital Protection Oriented Scheme – Series VIII – III – 1281 Days | 121.00 | 6% | – |
| ICICI Prudential Capital Protection Oriented Fund IX – Plan D – 1378 Days | 109.23 | 6% | 7% |
| UTI Capital Protection Oriented Scheme – Series VII – V – 1281 Days | 107.55 | 5% | 7% |
| SBI Capital Protection Oriented Fund – Series A (Plan 3) | 100.07 | – | – |
| Sundaram Capital Protection Oriented Fund – Series 7 – 5 Years Plan | 97.07 | 6% | 7% |
| UTI Capital Protection Oriented Scheme – Series VIII – I – 1278 Days | 94.17 | 5% | 7% |
| Sundaram Capital Protection Oriented Fund – Series 8 – 5 Years Plan | 86.58 | 6% | 7% |
| UTI Capital Protection Oriented Scheme – Series VIII – II – 1831 Days | 86.44 | 6% | – |
| ICICI Prudential Capital Protection Oriented Fund IX – Plan E – 1325 Days | 78.88 | 6% | 8% |
| ICICI Prudential Capital Protection Oriented Fund XI – Plan D – 1247 Days | 78.49 | 7% | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 1) | 75.23 | – | – |
| UTI Capital Protection Oriented Scheme – Series IX – III – 1389 Days | 75.07 | 8% | – |
| UTI Capital Protection Oriented Scheme – Series IX – I – 1467 Days | 61.53 | 8% | – |
| ICICI Prudential Capital Protection Oriented Fund XI – Plan C – 1255 Days | 51.65 | 8% | – |
| ICICI Prudential Capital Protection Oriented Fund XI – Plan E – 1222 Days | 49.33 | 8% | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 2) | 48.95 | – | – |
| UTI Capital Protection Oriented Scheme – Series VIII – IV – 1996 Days | 43.90 | 7% | – |
| UTI Capital Protection Oriented Scheme – Series IX – II – 1462 Days | 37.37 | 8% | – |
| UTI Capital Protection Oriented Scheme – Series VII – II – 1281 Days | 36.63 | 3% | 7% |
| ICICI Prudential Capital Protection Oriented Fund XI – Plan B – 1222 Days | 35.47 | 7% | – |
| ICICI Prudential Capital Protection Oriented Fund VII – Plan D – 1822 Days | 33.66 | 5% | 7% |
| ICICI Prudential Capital Protection Oriented Fund XII – Plan A – 1168 Days | 30.65 | 8% | – |
| UTI Capital Protection Oriented Scheme – Series VII – III – 1279 Days | 29.81 | 4% | 7% |
| ICICI Prudential Capital Protection Oriented Fund XI – Plan A – 2056 Days | 29.08 | 9% | – |
| UTI Capital Protection Oriented Scheme – Series X – II – 1134 Days | 28.04 | 8% | – |
| ICICI Prudential Capital Protection Oriented Fund XII – Plan C – 1270 Days | 27.92 | 7% | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 2) | 0.00 | – | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 3) | 0.00 | – | – |
| SBI Capital Protection Oriented Fund – Series A (Plan 4) | 0.00 | – | – |