What is it?
Franklin Templeton India Feeder–Franklin US Opportunities Fund (FTF) is a fund of funds that will invest its entire corpus in just one scheme, Franklin US Opportunities Fund (Fuof). Fuof is a Luxemburg domiciled MF schemes that invests in scrips in the US, including Apple Inc., MasterCard Inc., Google Inc. and so on.
When you invest your money in FTF, you will need to do so in Indian rupees, much like any other MF scheme. It will then covert your rupees into US dollars and invest in Fuof.
What works?
Many financial planners who swear by diversification suggest that it’s better to diversify not just across assets within India but also abroad. Quite a few MF schemes launched in the past three years have focused on investing abroad. But what sets Fuof apart from them is that this one invests in companies that are listed in the US across themes, sectors and market capitalization. The US markets have been showing some signs of recovery and fund managers believe that with valuations beaten down, stocks are available at good bargains. The Dow Jones index (an index of 30 companies across information technology and industrials) and Nasdaq Composite Index (over 2,500 securities form part of this index) rose 11.8% and 12.8%, respectively, in the past two years. Further, Fuof invests in companies that derive a significant chunk of their earnings from abroad, so their fortunes are not just tied to the US. Fuof is a 5-star rated scheme by Morningstar Inc., an MF tracking firm.
What doesn’t?
Investing in foreign funds is subject to currency risk. If the rupee depreciates against the dollar (more rupees for every dollar), you gain. But if the rupee appreciates (less rupees for every dollar), you lose. Last year, the Indian rupee depreciated about 17% against the dollar. But any central bank defends a weakening currency as imports become costlier. Last year, the Reserve Bank of India intervened to correct rupee’s depreciation by taking measures such as selling dollars in the open market, deregulating deposit rates of non-resident (external) rupee or NRE deposits and ordinary non-resident accounts. Fuof’s last one-year return in rupees was 15.08% compared with a loss of 3.05% in dollars. But this may not happen every year.
Should you invest?
We usually don’t recommend foreign funds as there’s enough opportunity to invest in the Indian markets via a variety of schemes. At times in falling markets, the US markets have shown greater resilience than Indian markets. Between December 2007 and March 2009, Dow Jones fell 21% compared with a 43.21% fall by the Nifty. You won’t miss out on anything if you skip FTF, but if you must invest, limit your MF portfolio investment in FTF to 5-10%.