What is a capital protection oriented fund? What is a Equity derivative fund?

Answer 1

A capital protection fund aims primarily protecting your captial (i.e. invested amount) from losses. Equity markets don't always go up, sometimes they go down also. Thats where the capital protection oriented fund comes in. If you invest Rs. 10,000 now, the scheme will try to ensure that after 3-5 years, the value of your investment would be at least Rs. 10,000 (or say 10% less than that). Needless to say, the added protection provided comes at a cost and the returns made from these funds is a lot less than normal fund schemes.

Equity derivative funds invest their corpus (pooled money from investors) in equity derivative instruments like options and futures. An option gives you the right but not the obligation to buy a share (or other asset) at a particular price at or before a future date. For example, you can enter into a contract to buy shares of XYZ company at Rs. 300 on or before a date 3 months from now. If the share price is Rs. 350 then you can exercise the option and make money. If the price stays below Rs. 300, then the option goes waste and you lose only the amount invested in buying the option contract.

A futures contract is an agreement to buy or sell shares at a later date at a particular price.

Equity derivate funds are risky instruments with high downside or high upside, depending on which side the contracts go

Answer 2

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