Now instead of getting into the hectic mumbo-jumbo, let me tell you straight. This is a new fund offer or NFO from ICICI and has a special facility that you can book your profits automatically once your investment reaches a certain pre-defined threshold.
Most of the problems with investing in stock markets or investing in mutual funds are caused by the fact that investors dont know when to book the profits. They believe that their stock investments will continue to grow forever. However, it is not true. Every now and then there comes a bear market and new things (pot-holes) are discovered which erode the investors capital completely. Ask an invesstor who has burnt himself by investing in Satyam Stock. Though Satyam is an extreme case, even bluechip stocks like ICICI Bank, Reliance, SBI, have fallen through the roof.
What is the solution to this problem?
The solution is not to be greedy and book your profits at pre-defined levels.
For e.g. before committing any money to any mutual fund, say you decide that you want to set your profit target at 20% levels. So once the profit of 20% is achieved, exit from that investment and transfer that money to a bank fixed deposit or savings account or bond, where your money is safe.
ICICI Prudential Target Returns Fund claims to do that for you automatically. This is how ICICI describes the working of their fund:
As per the details available, ICICI Target Returns Fund has a facility by which investors can book profits automatically. In this fund, gains made above a certain trigger percentage get redeemed automatically from the fund and are switched to a fixed income fund, which is chosen beforehand. The investor can choose trigger percentages of 12, 20, 50 or 100. Whenever the gains since the initial investment or since the last trigger cross this percentage, the money gets switched.
Hence, they claim that your money will be secure at your desired levels and you will not have to worry about the market downturns.
What are the risks in ICICI Prudential Target Returns Fund?
I see many risks here.
First, there is no guarantee that your desired profit level will be reached. What if the stock markets continue to go to the bottom or simply that they dont go up and remain sstagnant below the lowest trigger level.
Second, even if the trigger level is reached, your choice of switching is limited to Income funds again from ICICI. They are namely, ICICI Prudential Liquid Plan, ICICI Prudential Floating Rate Plan, ICICI Prudential Short Term Plan and ICICI Prudential Income Fund. What if these debt funds underperform and you suffer a loss even after switching your money?
Third, entry load is huge - 2.25% for retail investors investing less than 2 Crores. Then there is exit load if fund units are redeemed before 6 months - 1.5%, between 6 and 12 months - 1%.
So the choice is yours.
Are there any alternatives to ICICI Prudential Target Returns Fund?
How about taking the risk on your own in the open market, instead of paying heaving entry and exit load to the fund managers? :-)
It is you who has to take the call, it is you who have to take the risk, it is you who have to decide your profit levels before investing in ICICI Prudential Target Returns Fund. So why not simply decide the profit levels and invest in an Market Index based ETF as explained here. But do remember to exit when your desired profit level is reached.
Any tax benefit available for investing in ICICI Prudential Target Returns Fund?
No. There is no tax benefit available.
What are the NFO dates for ICICI Prudential Target Returns Fund
ICICI Prudential Target Returns Fund NFO is currently open and will close on 14 May 2009
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