Capital Protection Funds

Capital Protection Funds

Capital protection is the first thing that comes to the minds of investors when the stock market becomes volatile, similar to what the current situation is. As the markets goes down amidst volatility, value of investments erodes and the investors who are risk averse liquidate their investments to protect the core capital.

To cater to the needs of such investors who are risk averse and want to protect their initial capital and at the same time participate in the equity markets, many mutual funds have launched capital protection funds. These funds are structured in a way to protect the original investment at the time of maturity and hedge against uncertainty.

Capital protection oriented funds (CPF) are closed-ended debt mutual funds that aim to invest a significant amount of money in top-rated fixed income instruments and the rest in equities. The tenure of the schemes can be one, three or five years. This investment in fixed income products along with the interest would ensure that the investors will get their capital back on maturity and the investment in equities will provide the upside to the portfolio.