Mr. A Balasubramanian, CEO, BSLMF, said, "Given that today investors in India have over Rs 37 lakh crores in FDs, BSL CPOF Series 1 offers us an opportunity to provide these Investors an alternative investment avenue. Investors with safety on their mind and with a time horizon of 2-3 years are our target audience".

"The fund intends to invest 90% of the capital on the debt side in high quality debt instruments. The rest 10% of the capital shall be invested in the equity side and shall comprise of high growth stocks. Basically, the fund offers investors an opportunity to invest a small portion of their portfolio in equity market with low risk," he said

The opportunity for advisors is huge

From March 31, 2009 till Dec 31, 2009 :

o Bank fixed deposits grew a whooping Rs. 4,15,713 crs.

o Monthly Income Plans average AUM grew a meager Rs 9308 crs. (that's just 2.2% of above fixed deposit growth) and,

o Open-ended equity funds AUM grew Rs 5811 crs. (which is just 1.4% of fixed deposit growth).

As financial advisors, you do not intermediate in your clients' fixed deposits investments - thus losing out on a big chunk of their investments.

Why do investors prefer bank fixed deposits over other investment avenues? Why do investors put in only a small fraction of their savings into mutual funds? What do investors really want out of mutual funds?

A survey done by KPMG-CII in 2009 on Indian mutual fund industry states, customers are looking for the following in a mutual fund product:

o I want protective products with guaranteed income and good absolute returns.

o As a retired person, I want more debt funds options with a safe mechanism of regular saving along with the varied pension option

o I want assured returns schemes that are a mix of risk-free & high risk portfolio where I can invest small sums of money

o I want clear & easy explanation of various schemes"

Conventional savers in India have stayed away from the market linked investment like mutual fund, as the returns are subject to market risk and there is a potential to lose capital. Keeping the above entioned parameters in mind, this fund takes away the entry barrier for such savers by offering them the fund oriented towards Capital Protection. The orientation towards protection of the capital originates from the portfolio structure of the scheme and not from any bank guarantee, insurance cover, etc. Moreover, due to active management of controlled equity exposure and tax benefits, the fund returns could potentially be higher than the 'interest' received from the high quality savings options.

In short, for traditional savers who have never experienced mutual funds, this product could be a gateway to market linked investment avenues like mutual funds.

And for advisors, Capital Protection Oriented Funds like the one Birla Sun Life has launched may just be the key that allows you to vastly enhance your wallet share from your clients - by offering them products that can finally compete with bank fixed deposits!

But, what if equity markets tank?

The investment into debt instruments would be such that it grows to 100% of net assets, thus providing capital protection. Since the fund, under no circumstances, would invest into instruments with maturity higher than the maturity of the scheme, the exposure to interest rate risk would be nil. The only risk the debt portion would be subjected to is credit risk.

But considering that the investments would be made into the highest rated papers of CRISIL, the risk of default is also very low. Also, for the capital to be below par, apart from credit default, the AMC is also assuming that the equity portion becomes 'zero', the possibility of which is very low. Historically, since the inception of BSE Sensex till 19-Jan-10, if we observe the daily rolling return for any 27 months, then it generates:

* Average of 18% CAGR

* Best return of 128% CAGR

* Worst return of -23% CAGR (which was from 22-Feb-00 to 22-May-02 the dot-com bust period)[Source: MFI, ICRA; internal computation]

Even if we assume the worst case scenario historically, we see that the equity investment doesn't become zero. Since debt portion grows to 100 at the end of the tenure, the total value of equity portfolio at the end of the tenure in effect is the return to the investor.

The same has been illustrated below in a simple example graphically assuming net assets of Rs. 100.

Fund details

BSL CPOF Series 1(27 months), has been rated AAA(so) by CRISIL. The fund offers growth option only with minimum application amount of Rs 5,000 and multiples of Rs 10 thereafter during the new fund offer period. Non-Resident Indians (NRIs), Foreign Institutional Investors (FIIs) and Person of Indian Origins (PIOs) are eligible to invest in the scheme on a full repatriation basis.

Benchmarked against CRISIL MIP Blended Index, the fund has no entry and exit load. It shall be open for subscription till 5th March 2010.

The redemption of units shall be allowed only at the maturity of the scheme. However, the fund shall be listed on stock exchanges, and investors can buy sell units of the fund there.