Is this a new investment destination or just a fad?
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» Can India afford poor factory output growth?
» Dubai a threat to Indian aviation industry?
» Highway expansion to cost India US$ 12 bn
» Bank credit grows but not in the right place
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So how does the CPOF work? Most CPOFs invest majority part of their funds in debt markets. This way they are able to guarantee the capital as it works pretty much the same way as it does in the debt market. The assured return is nothing but the interest rate that the debt instruments pay. The over and above return is earned through the limited exposure to equity markets. As a result, the best returns that most CPOFs offer are in the range of 7 to 9%. So why are these funds not popular?
Well the reason is that a retail investor can earn pretty much the same returns from a fixed deposit scheme. And in that the investor does not need to pay the mutual fund fees either. So why would one invest in a CPOF? Some may say for the exposure to the equity markets. But the CPOFs do not invest more than 20% of their funds in the stock markets. As a result the returns remain limited. A retail investor can earn better returns by simply investing in fundamentally sound companies that are available at cheap valuations. Of course, the price movement may prove quite erratic in the near term, even going down by 30%-40% at times. But over a long term period, returns from such investments have a very strong chance of outperforming those from CPOFs by quite a distance.
Therefore, the CPOF maybe a new investment destination advertised by fund houses and insurance companies. But we feel that they are nothing more than a new fad that will fade away due to lack of investor interest.
Do you think Capital Protection Oriented Funds are the new investment destination for retail investors? Share your comments with us or post your views on facebook page.
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But we could learn some very important lessons from Dubai. The success of its aviation industry has been due to well-planned strategic decisions taken by the government and the industry together. The country realized the economic importance of the industry and took appropriate steps to emerge as an aviation hub. India, on the other hand, has no long term policy for the aviation sector.
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04:55 | Today's investing mantra |
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5 Responses to "Is this a new investment destination or just a fad?"
S.K.Damani
Jun 7, 2011There is a huze difference in the airports around the world and that in India. Even small cities like say NAshville, Orlando, have a hundred times better facilities than Mumbai. Brussels is the european hub of Jet airways, it is a small airport, but offers best facilities. Unfortunately our Govts., of the past have never given any importance to the development of this sector. Every govt. has considered Air travel and airpoets as luxury and neglected it. The time taken to approve the Navi Mumbai Airport is another case in point.
Present mumbai airport, particularly Baggage claim are is so congested that to get the baggage it takes almost an hour (particularly during night times when many flights land).
Even infrastucture growth, roads and highways have a very long way to go. Comparing roads and highways of say US to that of India is like comparison between two different centuries. We are way behind the world.
And worst, our politicians are so corrupt that to expect them to do things in the interest of the country, is just expecting too much.
Thanks
Damani
N.M.R.Shreedhar
Jun 6, 2011Hi, reg CPOF's -- maybe better to invest in the previous fad-where Insurance companies like LIC were assuring the highest NAV, at least the scope of capital appreciation is higher than in CPOF's. Ultimately, it makes more sense to invest for the long-term in stocks of financially sound companies with good management and growth prospects--at least you are fully aware of the risks. regds
vinay topa
Jun 6, 2011one thing you forgot to mention. Even at 7-9% they can be attractive as compared to FDs due to the I.TAX applicable to FD interest - specially if you are in the 30%taxation bracket and would not like to take too much risk or are retired.
santhosh yadav
Jun 7, 2011It is true the infrastructure development in india is growing at a snail pace.The reason being the lack of will and stateman ship from our political leaders and contractors.The system has gone rotten and there no zeal for any body to make quality infrastructure at a fast pace.
We do not take pride in beautifying our country , but we relish the beautiful cities of the other countries.That is why our film fraternity take pride in shooting films outside our country in exotic places and cities.
we have not learnt to keep our homes beatiful, but relish and enjoy the homes of other, whose houses were built by teir sheer hard work, planning and dedication.