The Hindu Business Line : Benchmark MF lines up inverse index fund

Benchmark MF has lined up an open-ended fund that will seek to derive investment results corresponding to the inverse of the daily performance of the Nifty.

The proposed Benchmark Inverse Index Fund, which will be subject to inverse co-relation risk as it will aim at achieving the opposite of the index, will be different from traditional mutual funds: it will lose value when the Nifty (or its constituents) advances. Similarly, it will increase in value when the market declines.

Market movements

The fund's NAV will react to stock market movements, it is pointed out.

It is expected that a significant portion of its assets will come from investors who are very active in the market or who believe in its tactical asset allocation strategies.

Active trading, however, will increase the rate of portfolio turnover; high portfolio turnover may have negative impact on performance.

Further, large movements of assets may negatively impact the ability to achieve the investment objective. The fund manager, Mr Vishal Jain, will chiefly use derivative products in an attempt to protect the value of the portfolio.

Short exposure

Short exposure may well be in derivative instruments linked to the Nifty and its constituents, and securities constituting the index in the same proportion as in the Nifty and exchange-traded funds (ETFs) linked to it, according to the draft offer document filed with the SEBI.

Such allocation can be as high as 100 per cent depending on circumstances.

Incidentally, current regulations do not allow taking of short positions in equities and ETFs.

The fund, which is for investors who seek to profit from a declining scenario, will move by a larger factor than the underlying index but in the other direction.

"Benchmark Inverse Index Fund offers a way to profit from a falling market," the fund has said while referring to the scheme's rationale - an option for investors who would like to hedge their long equity exposure taken either directly or through other mutual funds.

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