A large number of investors feel they have missed the strong bull rally in the stock market, and are eager to enter equities to gain from the northward movement. Additionally, the prospect of a fall in the rate of interest in the economy is raising the probability of a strong rally in the debt market too. To address this dual need -investors' expectations to gain from both equity and debt market rallies -fund houses have in recent times launched closed-ended schemes that mostly invest in debt instruments, with a small part invested in equity schemes too.
Fund industry officials say that these funds are ideal for, among others, investors who plan to invest in the equity market for the first time. One of the reasons is that a large part of the fund's portfolio is invested in debt instruments which, like the highly popular bank FDs and RDs, also generate assured returns. In addition, at maturity, the small portion of the equity in the portfolio can give a kicker to the return. The mutual funds industry has been categorizing these schemes as dual advantage, multiple-yield, etc. Now these funds are gaining in popularity among investors.
So what is the basic idea behind such funds? In these schemes, the initial investment amount is protected by investing a large portion of the corpus, in the range of 80-85%, in debt investments. The debt portfolio is structured in such a manner that, at maturity, the investment and the interest accrued together should equal the initial investment.
Now, if the fund manager had invested 85% of the corpus in debt instruments, the balance 15% is invested in equities. Then at maturity, the equity portion is expected to grow so that your total return is something more than your initial investment. Theoretically, even if the equity portion becomes zero, still the initial capital is fully protected by the debt investment.
Since dual-advantage schemes are closed-ended in nature, one of the advantages of these schemes is that investors are protected from market volatility. However, the liquidity in these funds is very limited.
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
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