New Fund Update: Sundaram Capital Protection Oriented Fund Series 2 – 3 years

Author: iFAST Research Team

Sundaram Capital Protection Oriented Fund is a hybrid mutual fund scheme that will have a mix of debt

and equity. The debt portion of the fund will be managed passively and would invest over 80% of corpus

in AAA rated corporate paper or government securities and hold them till maturity so that with interest,

the fund grows back to principal investment. And rest of the money, around 20%, would be invested in

equities. The equity portion will be managed with bottom-up stock picking approach and the fund would

invest in stocks forming part of S&P CNX 500 index. The portfolio will be a multi-cap equity portfolio

with a mid and small-cap emphasis.

Why an investor should look to invest in this Fund?

• The fund provides a good blend of equity and fixed income investments with capital guaranteed

at maturity

• The fund is rated AAA (structured obligation) by CRISIL which indicates highest degree of

certainty regarding timely payment of face value of the investment

• The fund is more tax efficient as it would be taxed as a debt mutual fund i.e., 10% (without

indexation) and 20% (with indexation) whilst marginal tax bracket is applicable to fixed deposits

which could be as high as 30%.

Past performance of some of the Matured Capital Guaranteed schemes:

Scheme Name Matured Date Return- Since Inception (CAGR)

Birla SL CPO-3Yrs(G) 03-Aug-2010 5.42

DWS Cap Prot Oriented(G) 01-Jun-2010 6.63

FT India CPO-3 Yrs(G) 14-Jun-2010 7.48

Sundaram BNP CPO-3Yrs(G) 23-Aug-2010 8.90

UTI CPO-1- 3 Yrs(G) 22-Feb-2010 7.25

Average - CRISIL MIP Blended Index

7.62

Source: ACEMF,iFAST Compilation

*CRISIL MIP Blended Index performance is taken based on the average performance of the index during the tenure

of each of the above mentioned scheme

Though capital guaranteed scheme as an investment class has not outperformed the benchmark, CRISIL

MIP Blended Index, Sundaram BNP CPO Series 1 has outperformed the benchmark as well the category

average. Capital Guaranteed scheme also comes with an advantage of guaranteeing the capital which is

not available in MIP.

Conclusion

In the current scenario, on account of six continuous rate hikes done by RBI and tight liquidity condition,

yield on short-term debt papers is at attractive levels. In addition, on equity side, India is world’s second

fastest growing economy and is expected to grow over 8% for at least a decade. With positive

demographic and strong consumption story, the equity markets are well positioned as an attractive

investment opportunity for long term. Hence to take advantage of current investment opportunities

available in debt and equity markets, investor having low risk appetite can consider investing a portion

of their portfolio in a capital protection fund.

Conservative or moderately conservative investor who is looking to invest in fixed income instrument,

with a possibility of enhancing return through limited allocation to equity, can look at investing in this

fund. Also, individual in the highest tax bracket and likely to invest in fixed deposits can park small

portion in this fund to enhance post tax return.

Sundaram Capital Protection Oriented Series II Fund has high credit rating and the performance of the

earlier fund issued by the fund house, Capital Protection Oriented Fund – Series 1, has been good too.

The fund house has around 78% of their AUM in equity schemes and the performance of their equity

schemes has been good over long term. Hence, considering the current economic scenario as well as the

pedigree of the fund house, this fund seems to be a promising bet.

Basic details of the fund

Disclaimer

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