The National Stock Exchange (NSE) slid by 715 points on Monday, closing 13% down at 4,990, but one stock surprisingly managed to yield a two-digit return. Franklin Templeton Capital Protection 3 Year-Growth Fund, which is a capital guarantee fund and is listed on the exchange, gained 20% at Rs37 on a trading day gone awry.
While many didn’t have any clue for such a sharp rise others say it might be an accounting error. “We don’t have any clue why the scheme has shot up by 20%,” said a representative of the company who didn’t want to be quoted.
Capital protection plans are either simple products, with allocation of substantial portion of its portfolio to high quality debt investments, or structured products where you can structure the pay offs in a lot of different ways through investing in derivatives. These products assure you upside with the downside protected. Franklin Templeton Capital Protection Fund invests around 81% of its assets in debt securities and money market instruments and the rest in equity. It’s a three year close-ended fund with no entry load and was listed on the exchange to give an exit route to investors. The scheme has allocated around 15% of its funds to financial services, technology and engineering sectors. During last week, as on 18 January at net asset value of Rs11.13 , the fund gave a negative return of 1.48% compared to 11% return since launch (May 2007).
“Although all the four capital protection schemes of Franklin Templeton Investments are listed on the exchange, only one scheme manged to show up in the list of top ten gainers,” said Hemant Rustogi, a Mumbai-based financial planner. “With a huge gap of 300% in its 52 week high and low of Rs9 and Rs37 it is difficult to point out any particular reason for such a sharp rise.”
Capital protection plans are mostly preferred by high net worth individuals because they score over fixed deposits and bonds on the tax front. While bank fixed deposits and bonds gives post tax returns of 5.64%, protection plans give post tax returns of 7.55%. The difference occurs because interest from fixed deposits is charged at marginal rate of tax, 33% (highest tax slab plus surcharge) while protection products are charged at 10% as long term capital gain.