Friday, April 24, 2009


The dramatic fall of over 50% in Indian stock markets since January 2008 has left many retail investors in bad shape. This is true for people who have invested in equities through mutual funds which are supposed to be less risky. But, the market collapse has led to many retail investors seeing their corpus down by a large percentage. Many are now regretting that they did not en cash some of their gains when the market was doing well.But since mutual fund investors could not have booked profits without selling their units, the option of en -cashing some of the gains was mostly untenable for mutual fund investors.
But now ICICI Prudential has launched a mutual fund which aims to address this issue. Their Target Returns Fund is a fund which aims to provide all its investor an option to remove gains from the fund to a stable debt fund at a predetermined trigger,thereby protecting the gains made.
How does this fund work? The fund seeks to generate capital appreciation by investing predominantly in equity shares of large market capitalization companies constituting the BSE 100 Index. It provides investors with an option to switch the appreciation or entire investment with appreciation to pre-selected debt schemes of ICICI Prudential Mutual Fund automatically based on pre-set triggers for their expected target return; as and when these targets are achieved.
How will it benefit the investor?Predetermined triggers are set for investors based on their risk appetite. Based on appreciation in the NAV when investors’ pre-selected targets are achieved, appreciation if any is transferred on behalf of the investors by transferring the appreciation into a debt fund of their choice.This minimises the potential volatility in earnings for the investor.
What are the predetermined triggers?The investor will have the choice to select from a set of 4 triggers viz., 12%, 20%, 50% and 100%. On achieving the pre-set trigger from initial investment level, either the appreciation in NAV per unit or the entire investment (as selected by investor) will be switched into any of the four pre-selected eligible debt schemes .
Why invest in this scheme? The biggest USP of this scheme is the option of transferring one's gains from this fund to a more stable debt fund thereby protecting the gains. If we have had this kind of option in all the equity funds available in the market earlier, the damage in the stock markets would not have affected the retail investors mutual fund portfolio that much , since part of the profits would have been regularly moved to debt fund.
The drawback? Since the fund aims to protect the gains made in by the fund by transferring part of the corpus to a debt fund, the potential for an upside in a stock market is limited as against a traditional equity fund without this option.
My verdict- Its a fund which offers a unique benefit to its investors. The predetermined triggers will enable even a "not- so- active investor" to hold on to his gains made during good times. This is an option whose time has come and I expect most of other funds to offer this option.

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