Kotak Wealth Builder
There is quite an appetite for capital protection-oriented schemes, now that the markets are in uncharted territory. Franklin Templeton’s Capital Safety Fund, the first of its kind, raised Rs 500 crore in its new fund offer (NFO). UTI Mutual Fund is now in the market with a similar fund.
One grievance about such schemes, however, has been that the returns may not be too exciting. In a three-year plan, for instance, only about 20 per cent of the corpus is put in equities, and so, the upside from an equity exposure is limited. Besides, if the market falls, investors end up with zero return.
To tackle these problems, Kotak Mutual Fund has launched a scheme that invests the equity component in the derivatives space to benefit from the leverage this segment provides. Kotak Wealth Builder series I is rated AAA (so) by CRISIL. About 78 per cent of the corpus will be invested in AAA-rated debt, and with the balance Kotak’s fund managers would take hedged positions in the derivatives market. When the markets fall, the fund could gain because of the position taken in the derivatives market. There could be instances when the call could go wrong, but the maximum loss would be the cost of the option bought for hedging purpose.
In sum, Kotak’s approach could generate returns very close to that of the stockmarket, at the credit risk profile of a AAA-rated bond.
One grievance about such schemes, however, has been that the returns may not be too exciting. In a three-year plan, for instance, only about 20 per cent of the corpus is put in equities, and so, the upside from an equity exposure is limited. Besides, if the market falls, investors end up with zero return.
To tackle these problems, Kotak Mutual Fund has launched a scheme that invests the equity component in the derivatives space to benefit from the leverage this segment provides. Kotak Wealth Builder series I is rated AAA (so) by CRISIL. About 78 per cent of the corpus will be invested in AAA-rated debt, and with the balance Kotak’s fund managers would take hedged positions in the derivatives market. When the markets fall, the fund could gain because of the position taken in the derivatives market. There could be instances when the call could go wrong, but the maximum loss would be the cost of the option bought for hedging purpose.
In sum, Kotak’s approach could generate returns very close to that of the stockmarket, at the credit risk profile of a AAA-rated bond.
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