DECODED: Franklin India Banking & PSU Debt Fund
Apr 05 2014
WHAT IS IT: Franklin India Banking & PSU Debt Fund (FIBPDF) is a new open-ended sectoral income fund that will predominantly make investments in debt and money market instruments issued by banks and public sector undertakings (PSUs). It does not target any average portfolio maturity, which means the tenure of the securities its investments can fluctuate wildly from the ultra-short term to the long term, depending on the fund manager’s thinking.
NFO PERIOD: The new fund offer of this scheme, which opened on April 2 will close on April 16. It will re-open for ongoing sale and re-purchase on April 28. Minimum size of application is Rs 5,000.
ASSET ALLOCATION & BENCHMARK: Debt and money market instruments issued by banks, PSUs and public financial institutions get an 80-100 per cent allocation, while 0-20 per cent can be deployed in money market and debt securities issued by other entities, gilt securities and state development loans. The benchmark index will be the Crisil Composite Bond Fund Index.
LOADS & CHARGES: Exit load of 0.5 per cent is levied on redemptions within six months from purchase. Annual recurring charges can go as high as 2.87 per cent.
FC VERDICT: Being a specialised, sectoral debt fund, FIBPDF is not for investors seeking fixed income returns from mutual funds for the first time. First-time debt fund investors should not look beyond a fully diversified income fund which invests in debt and money market instruments issued by any entity and whose average portfolio maturity is at least one year. Last few years has seen most debt funds struggle to find investment opportunities in the debt market beyond bank certificate of deposits and banks’ money market borrowings. Exposure to bank debt is high among most debt funds and ranges from a minimum of 20 per cent to a high of 80-90 per cent. The ones having a bank debt exposure are not favoured by diligent investors who want a wider diversification. FIBPDF makes no pretence at the outset. It can invest up to 100 per cent in bank debt. FIBPDF is just the newest of Franklin Templeton Asset Management (India)’s several debt fund offerings. Other than FIBPDF, the AMC is already managing nine open-ended debt schemes, some of which will end up competing with FIBPDF because of the flexible, indicative nature of asset allocation. Only investors seeking a specialised, sectoral exposure in income funds can consider FIBPDF and even they need to first see whether Frankin Templeton MF’s other debt scheme offerings fit the bill better.
— Rajesh Gajra