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Tuesday, Jun 07, 2005

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Principal Mutual plans interval fund to tap arbitrage opportunities

Our Bureau

Kolkata , June 6

PRINCIPAL MF has lined up an interval fund to tap arbitrage opportunities. The proposed fund will have two plans, one focused on equity and the other on debt.

The offer document placed with SEBI has underlined the following special risk factors:

  • This scheme being an interval fund, the investors can make redemptions and switch-outs only during specific periods.

  • As the liquidity of the investments made by the scheme could, at times, be restricted by trading volumes and settlement periods, the time taken by the fund for redemption of units may be significant in the event of an inordinately large number of redemption requests or a restructuring of the scheme.

  • There will be an impact on the scheme's NAV for three years due to the amortisation of the initial issue expenses.

    The offer document has also specifically mentioned that trading volumes, transfer procedures, and settlement periods may well be limiting factors for the scheme.

    When very few opportunities are available, or none at all, allocation to equity and equity-related instruments and equity-based derivatives (index futures, stock futures, etc.,) can go up to 75 per cent.

    Also, investment in money market and debt instruments can be in the 25-100 per cent range. Unit holders will be given the choice of two options - growth and dividend - with same portfolios. The fund manager will essentially try to identify opportunities that exist between the cash and derivatives markets. Under the debt plan, the exposure to equity and equity-related instruments will be capped at 49 per cent.

    Under the equity plan, the contribution of equity-based arbitrage can go up to 75 per cent.

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