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Introduction to the Fund

Franklin Templeton has been operational in India for over 2 decades now. The Indian office was set up in 1996 as Templeton Asset Management India Private Limited. The fund house currently manages assets worth Rs. 109442.21 crore as of December 2018 and 313 schemes across debt, equity and balanced genres.

Franklin India Low Duration Fund is an open- ended income fund. The fund invests in corporate bonds and other fixed income instruments. The objective of the fund is to provide nominal returns by assumption of low risk. The fund is comparable to short term fixed deposits. The fund has an average maturity period of 1 year. The risk associated with this fund is low.

Investment objective of Franklin India Low Duration Fund

The Scheme seeks to earn regular income for investors through investment primarily highly rated debt securities.

What is an income fund?

Income funds are funds which focus on generation of regular and nominal income, they do not focus capital appreciation. The underlying instruments of these funds include Government bonds, municipal bonds, corporate debt, preferred stock, money market instruments and dividend paying stocks etc., Money market instruments refer to certificate of deposit, commercial paper, short term treasury bills.

Fund houseFranklin Templeton Mutual fund
Launch dateFebruary 07, 2000
BenchmarkCRISIL Short term bond
CategoryDebt : Low duration
Risk gradeModerate
Return gradeModerate
Minimum investmentRs. 10,000
Additional minimum investmentRs. 1,000
Minimum withdrawalRs. 1,000
Minimum SWP withdrawalRs. 1,000

Plans and options available for the scheme

The various options available for the fund are -

  • Monthly Dividend Plan (MD)
  • Quarterly Dividend Plan (QD)
  • Growth Plan (GP).

Dividend plan is where there will be regular payout of funds in the form of dividend, one can either ask for payout or reinvestment. The funds declared as dividend will be reinvested in the fund as on that date. Growth plan is one where there are no intermediate payouts, the funds remain invested and on returns are in the form of capital appreciation.

Direct plan is where there is no entity in between fund house and investor. Regular plan is where there is a broker in between fund house and investor.

  • Long-term capital gains (LTCG) tax @20% (plus surcharge, if applicable and cess) with indexation if units held for more than 36 months
  • Short-term capital gains (STCG) tax at the income tax slab rate if units are held for less than 36 months
  • Investor does not pay any tax on dividends but a Dividend Distribution Tax (DDT) is deducted at source @29.12% (25% + 12% surcharge + 4% Health & education cess) for Individuals and @ 34.944% (30% + 12% surcharge + 4% Health & education cess) for any other person.
  • In case of an investor being NRI, LTCG tax are chargeable @ 10% (plus surcharge, if applicable and cess) without indexation relating to units redeemed from unlisted schemes.

Current portfolio (as of 30 January, 2019)

The current portfolio is a mixed bag of short term debt instruments and money market instruments which reflect low interest rate sensitivity and low credit quality. The number of instruments held by the fund are 90 with an average maturity of 0.88 years. The yield to maturity is at 10.2%.

ParticularsFundCategory average
Number of securities9047
Modified duration in years0.760.64
Average maturity0.880.76
Yield to maturity (%)10.2%8.7%

Portfolio composition of Franklin India Low Duration Fund

Corporate Debt72.18%
Money Market Instruments20.15%
PSU / PFI Bonds4.15%
Other assets3.52%

The portfolio is well diversified with 90 securities. This is close to 2x times that of the peer average. However, the fund has an average YTM (yield to maturity) of 10.2% as against the category average of 8.7% which translates to 1.5% higher than average returns. While the fund may run the risk of being perceived as over diversified, it has managed to justify its wide diversification by posting higher YTM.

The fund has a wide set of instruments within its realm. Below is top 25 securities held by the fund –

CompanyInstrumentAssets (%)
HDFC 353-D 28/02/2019Commercial Paper4.65
10.75% Greenko Clean Energy Projects 2020Debenture4.44
Essel Infraprojects 2020Structured Obligation4.43
National Bank Agr. Rur. Devp 170-D 31/01/2019Commercial Paper3.66
9.4% Small Business Fincredit 2020Debenture3.58
10.5% Ma Multi-Trade 2021Debenture3.3
9.6% Renew Power 2021Debenture3.19
8.4% Edelweiss Commodities Services 2020Debenture3.18
Wadhawan Global Capital 2020Debenture2.99
Clix Capital Services 2023Debenture2.92
9.2% DLF Home Developers Ltd 2019Debenture2.79
8.25% Vodafone Mobile Services 2020Bonds/Debentures2.72
Yes Capital India 2020Structured Obligation2.65
Aspire Home Finance Corp. 2023Debenture2.21
10.9% Vodafone Idea 2023Debenture2.2
Renew Solar Power 2022Debenture2.2
Reliance Infrastructure Consulting & Engineers 2021Debenture2.19
8.7% Vedanta 2020Debenture1.97
9.45% Vedanta 2020Debenture1.69
10.15% Uttar Pradesh Power Corporation 2021Debenture1.62
7.99% Tata Power 2020Non-Convertible Debenture1.58
Vastu Housing Finance Corp. 2023Debenture1.48
Edelweiss Commodities Services 2021Debenture1.47
Aspire Home Finance Corp. 2023Debenture1.47
10.15% Uttar Pradesh Power Corporation 2020Debenture1.16

The credit rating of the instruments held by the fund becomes critical. It is interesting to understand how the portfolio is designed in comparison to the benchmark against which the performance Is measured.

Rating typeFranklin India Low Duration FundDebt: Low duration
A & below48%28%
Cash equivalent3%5.5%

It can be observed from the above distribution, that the fund has invested in instruments with lower credit rating which has resulted in a calculated increase in risk level. However, the assumption of higher risk has resulted in higher YTM.

As stated earlier NAV is the critical factor which is used to arrive at the returns. The time period can range between daily, weekly, 1 month, 3 months, 6 months, 1 year, 3 years, 5 years, 7 years, 10 years etc., depending on the existence of the fund. Below is the performance snapshot of Franklin India Low Duration Fund –

Trailing Returns (%)1-W1-M3-M6-M1-Y3-Y5-Y7-Y
CCIL T Bill Liquidity Weight0.10.411.
Rank within Category11111111
Number of funds in category2626262626252321

The fund is of short term duration; hence, one needs to look at the short term returns particularly before investing. The investor needs to get a general understanding of how the fund has performed with respect to its benchmark and category and then invest after due diligence.

Income funds tend to provide attractive returns at low risk assumption. They are often juxtaposed against low duration term deposits or other such debt instruments. The returns on income funds tend to fluctuate and are not guaranteed. The returns tend to fall in a raising interest rate scenario and rise during a falling interest rate scenario. It is often used to hedge the existing debt portfolio which typically tends to move along with the market interest rates. This fund are ideal for investors who intend to park their fund for a short duration and earn decent returns at low risk.

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