Tuesday, October 12, 2010

Sri Lanka fund manager sells capital protected plan

Oct 12, 2010 (LBO) - Sri Lanka's largest fund management firm is selling an investment plan which allows cautious savers participate in a stock market upside but be protected from a steep fall by putting the bulk of the money in debt.

"If you are an investor who wants higher returns (because interest rates are low), the stock market could be an ideal option," says Praboda Samarasekara, head of NDB Aviva Wealth Management.

"But, stock market investments are risky which could not only wipe out an investor's returns but also his or her valuable capital."

"We are offering product where corporate debt will give enough returns to cover even a 50 percent fall in stock values."

The firm is offering an investment plan called Asai Bayai (Want to, but apprehensive) where money is split between its Eagle Growth and Investment Fund, which is in stocks and Eagle Income Fund which is in corporate debt.

A one year plan which is 10 percent invested in the stock market and 90 percent in debt would protect the capital even if the market fell 50 percent, as the 90 percent invested in corporate debt would give a return at least 5.0 percent in a worst case scenario, says Samarasekara.

At the moment Treasury bills are returning about 7.0 percent and good corporate debt about 9.0 percent.

"Effectively this means we have stress tested the plan for a steep fall in both stocks and interest rates, where an investor would still come out with their capital intact," says Samarasekera.

"If either or both does not happen you will be a gainer."

But people who have a longer term view can invest for two years with a 15 percent weighting on equity or three years with 25 percent in equity.

NDB Aviva Wealth Management is trying to make mutual fund buying simple by allowing investors to structure their plans according to the maturity needs.

source - www.lbo.lk

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