Structured Products

Mutual Fund industry is still taking baby steps in India.Unlike insurance, online trading as on this off spring has just about managed to capture and exploit about 8-12% of the entire economic potential. Indeed , there is a long way ahead of them.The next few years would undoubtedly be one of the best years in terms of growth rate for these mutual fund companies. However, in terms of products, they have come a long long way.Earlier these mutual fund asset management companies started with just a few liquid products for short term parking for the time horizon of 3-6 months. Then with the increase in demand and need, they launched Debt funds that were aimed to provide a return slightly higher than the usual savings or fixed deposit returns. These products were launched to educate the investors about how the mutual fund works.These debt and liquid products assured returns and were not exposed to the volatility of the market risk. Once the investors were comfortable with the concept of mutual fund, they launched equity products. First were the diversified equity products that had stock representative from all sectors. These products holding various types of papers diversified the risk associated with equity. For example if Company A is under performing then at least stocks of other holding companies is over performing. Hence investor is not 100 % exposed to the performance of Company a. These diversified equity products, were mopped up by various investors. Investors understood, that these products were best suited for them. They got the returns of a stock market without actively managing stocks.This helped them save time and also diversified their risk. As now they were holding stocks of more than one company. Once the investors were fine with the equity products the mutual fund companies launched sectoral products .These products are diversified but limiting them to a single sector. For example if AMC A has an IT sector product then it is holding fifty stock of various IT companies.These products are slightly riskier than others. Though their risk is diversified in terms of market risk, they are exposed to the sectoral risk. So now if Government of India announces a guideline that would affect the entire IT sector adversely, then all the stocks would suffer. They also launched ELSS schemes- Equity Linked Saving Schemes, these are mainly aimed at the salaried personnel , who would need to cover their tax requirement but would also want their money to appreciate . Then came the structured products-You have FMP- Fixed Maturity Plan that give you an assured return and aims the Fixed Deposit holders. The post tax return in these cases are higher. On the equity Front , they went beyond the normal equity and launched the Real Estate and Gold products. Both unique in terms of stock holding. Equity products crossed boundaries holding stocks of other Asian countries. Now the latest is Nifty Linked debentures giving assured returns with a Cap on returns. You also have a few Mutual Fund companies offering insurance with investments.