The Hindu Business Line : AMFI plans outfit to back MF capital-guaranteed schemes

An external agency — a bank may be an ideal candidate, it is felt — may have to be identified if capital has to be guaranteed when an investment is made.

Mr A.P. Kurian, AMFI Chairman

Kolkata , June 27

WANTED: A company, preferably a bank, which would back investments in capital-guaranteed schemes run by mutual funds.

The Association of Mutual Funds in India (AMFI), which has sought to examine the feasibility of developing capital-guaranteed products, is rooting for an outfit that will take the onus on itself. The first major meeting between members of a working group on capital-guaranteed schemes will soon take place with a view to exploring regulatory and other aspects of such a product. It is felt that there is a definite market for these schemes in India.

An external agency — a bank may be an ideal candidate, it is felt — may have to be identified if capital has to be guaranteed when an investment is made. The guarantor, in all probabilities, will be called upon to cover a certain portion of the amount invested in the scheme in question. Such an agency will require a fee, or `guarantee commission,' for its services.

"We want to understand if it is feasible in the current regulatory environment. If it is, there will be other proposals to take it forward," said Mr A.P. Kurian, Chairman of AMFI, adding that the key issue relates to the payment of fees. "The question is, who will pay: the investor, the fund manager or the sponsor?"

It is also pointed out the sponsor outfit itself may be asked to take the responsibility of underwriting, a practice that is followed in some cases internationally.

Yet another issue relates to the very structure of the capital-guaranteed scheme. An open-ended arrangement, it is felt, may not be completely suitable as it may be used inappropriately by some investors. It, however, needs to be seen whether its character can be made close-ended or interval in nature.

Headed by Mr Naval Bir Kumar of Standard Chartered MF, the working group includes Mr Ajay Bagga (Kotak MF), Mr Sanjay Prakash (HSBC MF), Mr Alok Vajpeyi (DSP Merrill Lynch MF), Mr A.K. Sridhar (UTI MF) and Mr Nilesh Shah (Prudential ICICI MF).

The association has also sought to underscore the difference between `assured return' and `capital guarantee.' Assured return schemes from MFs, it may be mentioned here, are currently not permitted in India, a country with a long and troublesome history of assured return schemes that have proved very costly for their sponsors. Assured return products, for instance, became contentious affairs for fund houses such as UTI MF and GIC MF.

"Capital-guaranteed products, if introduced in India in future, will be in a different sphere altogether," Mr Kurian said.

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