Union KBC Trigger Fund: Scheme with an automatic liquidation

The scheme caps capital appreciation at 30%

Do you regret upon missing an profit booking opportunity by selling mutual fund units before the stock markets take a hit?

Many of you who have failed to do so, not only once but on several occasions, might have a feeling that they are unable to make money out of their investments in equity mutual funds. And once the markets dip, one has no option but to wait in case there is poor loss-making appetite.

To address this issue, here comes an equity fund from the kitty of Union KBC Mutual Fund which assures investors of an automatic liquidation once the net asset value (NAV) appreciates 30%.

First of its kind in India's mutual fund industry, the fund house is launching its Trigger Fund (Series 1), a close ended equity scheme. This will be open for investments from upcoming Monday (14 October, 2013) and will close on 25th October. Ashish Ranawade is the fund manager of the scheme.

The scheme, with a feature of in-built profit booking, enables investors to realise profits at a pre-defined higher level. In the event the NAV of the direct plan of the scheme crosses Rs 13 per unit within a 3 year period from the date of allotment, the scheme will automatically be liquidated on the tenth business day from the day its NAV hits Rs 13.

The redemption proceeds at the applicable NAV of the tenth business day will be returned to the investors of both the plans under the scheme.

However, if the NAV per unit of the direct plan does not touch Rs 13 at any time during the 3 year period, the scheme will mature at the end of 3 years from the date of allotment at the then prevailing NAV.

This, essentially means that if an investor is lucky enough the benefits can be had within a year or a month or for that matter such possibility cannot be ruled out from week perspective as well.

But there is catch here. In case, NAV hits Rs 13 within a year, the investor would be liable to pay short term capital gain tax , thereby reducing the effective returns. The fund house has kept no exit load in the scheme.

The other possibility could be that throughout the tenure investors may not be able to make returns and might end up with depreciated capital over the time if market sentiments worsen.

One need to be cautious before investing in such a scheme which has capped appreciation of capital to a max of 30% but there is no cap in decline in case the markets fall.

The Trigger Fund (Series 1) will invest in a portfolio of equity and equity related securities, predominantly constituted of companies in S&P BSE 200 index. But it may invest in debt and money market instruments as well for tactical reasons.

The new fund offer price is Rs 10 per unit and the minimum application amount is Rs 5,000 and in multiples of Rs 10 thereafter.