Capital Protection Funds in India, Best Funds & Features

what is Capital Protection Mutual Funds

Capital Protection Funds in India are the type of Hybrid Mutual Funds that invest major portion in debt instrument and remaining portion in equities. The main goal is to protect the capital invested by investor. The funds are closed ended funds, which means you can invest in them during a specific time frame and have a lock in period as well. The exposure to equity is in such a way that the debt portion tries to get interest to equalize the amount invested, the the profits from equity portion will be the profits earned from these Funds.

Let us understand Capital Protection Funds in more detail.

What is capital protection funds?

  • Capital Protection Funds are the type of Hybrid Mutual Funds that invest in both debt instruments and equities
  • Main goal of these Funds is to protect the investor’s capital, so major portion is invested in debt instruments
  • The debt instruments used can be money market instruments like treasury bills, certificate of Deposits, Corporate bonds, etc.
  • The debt instruments selected here are highly rated instruments that rarely default on interest payments
  • Since the majority of the total assets is invested in debt instruments, they have low risk in nature
  • Capital Protection Funds are close ended Hybrid funds which means they can be invested in during a specific time period and have a lock in period
  • Usually the lock in period of the fund is aligned with the maturity of debt instruments, in order to avoid the impact of interest movements
  • These funds do not lose the value when market goes down, since their exposure to debt instruments is more and give decent returns when market goes up due to their exposure to equities
  • These funds belong to Hybrid mutual funds category since they invest in both debt and equity related instruments
  • You can read about All Types of Mutual Funds here

How capital protection funds works?

The working of Capital Protection Funds is quite simple

  • The allocation of debt instruments is in such a way that interest earned in debt must must equalize with the original invested capital
  • For example, if Rs. 10,000 is invested, Rs. 9259 will be allocated to debt instruments, and with expectation of 8% interest rate in the year, this debt instrument will earn Rs. 741 as interest amount thus making a total of Rs. 10,000, which was your original invested amount
  • The remaining Rs. 741 from invested capital will be invested in equities to get better returns
  • In this way, the invested amount is kept protect using the allocation to debt and interest you earn on it
  • The amount also depend on the tenure of maturity period of these debt instruments. Lock in period can be 1 year to 5 years, and accordingly fund allocation can be done in equity and debt related instruments
  • Capital Protection Funds are less risky compared to Equity Mutual Funds

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Features and Benefits

Below are some of the Features of Capital Protection Funds:

  • Low Risk: Since Capital Protection Funds invest majority of the total assets in debt instruments, these are low risk funds and tries to get good returns from their equity exposure as well at the same time
  • Protection of Capital: The main goal of these Funds is to protect your invested capital by investing certain percentage in debt and getting the remaining amount from the interest from debt instrument. The rest is invested in equities that can provide better returns during the fixed lock in period
  • Low Volatility: These funds are less volatile in nature since there are not much changes during interest rate movements compared to the volatility of equities or stock market
  • Lock in Period: Capital Protection Funds have a lock in period based on the maturity period of the debt instruments. The lock in period is aligned with maturity of debt instruments to avoid impact from interest rate movements

ALSO READ: What is Debt Mutual Funds, Features and Benefits

Are these funds Open ended or closed ended

Capital Protection Funds are closed ended mutual funds, which means you can invest in these funds during specific time frame, like during the opening of NFO (New Fund Offering).

They also have specific lock in period during which you need to stay invested in these funds while protecting the capital invested.

Best capital protection funds

Below are some Best Capital Protection Funds:

  • UTI Capital Protection Oriented Scheme
  • ICICI Prudential Capital Protection XI
  • Sundaram Cap Protection 5 Years Series 8
  • Sundaram Cap Protection 5 Years Series 7

Above are some of the best Capital Protection Funds, that have given good returns in the past, but it does not guarantee future returns. Please note that these are not recommendations and you should seek financial advice before taking investment decisions.

You can also invest in Income Mutual Funds to get regular income periodically from mutual funds.

Are Returns guaranteed?

No, Capital Protection Funds returns are not guaranteed like any other mutual fund, but their associated risk is low compared to pure equity mutual fund.

These fund’s major exposure is to debt instruments that help them to protect their invested capital.

You can also read about Liquid Mutual Funds, if you are a conservative investor and want better returns than savings account with high liquidity and no lock in period.


So Capital Protection Funds protect your capital invested by earning interest from debt instruments in such a way that it equalizes with your total investment amount. The remaining portion is invested in equity portion to get you better returns.

These funds are closed ended hybrid mutual funds that come with a lock in period depending on the maturity of the underlying debt instruments.

These Funds are best suited for conservative investors who want to protect their capital using debt instruments and earn better returns from equities.

Some more Reading:

Frequently Asked Questions

What are the funds that protect capital?

Capital Protection Funds helps you to protect capital by investing major portion in debt market and remaining portion in equity market out of total assets. The debt portion along with it’s interest earned will equal the total amount invested by you and hence these funds tries to protect your capital invested.

What is the capital Protection Fund in India?

Capital Protection Funds in India protect your capital by investing in hybrid mutual funds, in such a way that allocation to debt instruments earns you interest that equalizes your total invested amount, Remaining portion is allocated to equity market to get better returns which will be part of your profits.

Is capital protection fund debt or equity?

These funds are type of hybrid mutual funds that invest in both debt and equity, where major portion is allocated to debt instruments in order to protect the capital.

Are capital protection funds hybrid funds?

Yes Capital Protection Funds are hybrid funds that invest major portion of total assets to debt and remaining portion to equity.

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