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Prepare Your Own Capital Protection Oriented Fund:


Today there are number of capital protection oriented funds are coming in the market.As market is not going well,plans like fixed maturity plans(FMPs) or capital protection oriented funds are on rise.Such funds uses static hedge approach and allocate the funds in that proportion so that at least capital get protected.But is there really a need to invest in such funds?Can we self prepare our own fund?

Suppose I have to invest Rs.5 lakh for the next 5 yrs.I can take a medium risk and expectations are just that I should get my 5 lakh back to me.

Then I will use following strategy:

1.I will invest Rs.5 lakh in postal monthly income plans.I will receive approximately just more than Rs.3,300 monthly interest.I will start SIP of Rs.3000/-(after paying taxes etc) per month for next 5 years.After 5 yrs I will get my 5 lakh rupees safely back(invested in MIS) while interest invested in equity market will offer me returns as offered by market.Even if I loose my 100% money in equity I will not loose my principal.

2.I will invest Rs.3,25,000 in fixed deposits which will offer me at least 9% interest rate and remaining 1,75,000 in equity market. Maturity value of fixed deposit will be around Rs.5,07,000.and Rs.1,75,000 invested in equity market can grow as per market.Even if I completely ignores equity returns,I am able to have principal invested with me.

3.I will invest in liquid funds,dividend options and re-invest dividend in equity funds.Liquid funds do not have  any history of negative returns day to day basis and can be considered to be safe investment.

4.The following strategy will be my favorite but looks complicated.I will place money both in recurring deposits and systematic investment plans.If calculate,then I find that I have to invest Rs.7000/- per month to get back Rs.5 lakh.so initially I will keep Rs 1lakh in my saving account to invest in RD and SIP and remaining 4 lakh will be invested as four separate fixed deposits of 1 lakh each and tenor of 1 to 4 yrs.Whenever deposit will mature it will remain in my saving account and will fulfill the need of capital for combination of RD and SIP.RD will be kept constant at Rs.7000/- per month while SIP value will go on increasing each year.The summary is as shown in table:

Fixed deposit amount Term (Yr) Interest rate FD Maturity value and amount invested in RD and SIP
100000 Kept In saving account(2012-13) Not Considered RD:Rs.7000SIP:Rs.1300

(Jan 2012-13)

100000 1 Yr(Deposit made on 1st Jan 2012 and matured on Jan 2013) 9.25% 1,09,68RD:Rs.7000/-

SIP:2140/-

(Jan 2013-14)

1,00000 2 Yrs(Deposit made on Jan 2012 and matured on Jan 2014.) 9.25% 1,20,303RD:Rs.7000/-

SIP:3000/-(Jan 2014-15)

1,00000 3Yrs(Deposit made on Jan 2012 and matured on jan 2015.) 9.25% 1,31,952RD:Rs.7000/-

SIP:3996.

(Jan 2015-16)

100000 4Yrs(Deposit made on 01 Jan 2012 and matured on 01 Jan 2016) 9.25% 1,44,730RD:Rs.7000

SIP:5060

(Jan 1016-2017)

Maturity value of Recurring deposit comes to be:5,01,000 with annual post tax returns of 7%  .means my initial 5 lakh get protected and SIP returns will be as per market conditions.

 


Category: Fixed Income, Mutual Funds

Tagged: , ,

3 Responses

  1. Hema Raghavendra says:

    Eye opener for many who are looking for capital protection funds and Highest NAV guaranteed

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