BackProduct Crack – Franklin India Banking and PSU Debt Fund
The open-ended income fund will invest in debt and money market securities
Premium
Franklin Templeton Asset Management (India) Pvt. Ltd is launching a high-credit, actively managed fund—Franklin India Banking and PSU Debt Fund—with the objective of delivering steady returns. The open-ended income fund will invest in debt and money market securities predominantly issued by banks and public sector units (PSUs).
What’s good
The foremost positive is the fund house itself. Of the five income funds (other than liquid, ultra short-term funds and hybrid funds) it has, four are rated highly at 4 and 5 stars by mutual fund tracker Value Research. The fund house focuses on credit research and clearly segregates products on the basis of risk, which means a clear investment mandate for investors when it comes to choosing products. Investors can rest easy about the credit risk in this scheme as it will focus on high-credit securities. The fund will deliver returns through accrual income rather than tactical duration exposure. High duration adds to interest rate risk. Interest rates are inversely related to bond prices—when rates move up, prices fall, and vice versa. The fund will look to invest for the medium term (1-4 year maturity) and also focus on accrual (earning from interest coupon). If you remain invested in this fund for 18-24 months, you can make stable returns commensurate to yield on underlying securities. At present, one-year bank certificate of deposits and PSU bonds of medium-term maturity are quoting anywhere between 9.2-9.6%.
What’s not
The fund’s clear mandate to not take duration exposure can make the returns look relatively lower in a scenario where interest rates begin to correct. Income funds that can take on a higher duration exposure, notwithstanding the interest rate risk, will potentially be able to deliver higher returns in this scenario. Moreover, the typical issuance of banking securities is concentrated either in very short-term securities in the money market or in the extreme long end of the curve. This may restrict the fund’s ability to find meaningful investment opportunities at all times, given that it is focusing on accrual income in the medium term. Although the inclusion of PSU securities is meant to fill this gap with medium-term issuances, relying on just two industry segments may be limiting. The investment team has a bottom-up selection process and restricting it to just two sectors also limits choice.
Mint Money take
Choose a fixed income fund on the basis of the interest rate risk you are comfortable with, and your allocation. This product caters to 2-4 year, low-risk medium-return requirement. Medium return means you can expect to earn more than a liquid or ultra short-term fund. But in a falling rate scenario, long-term income funds can do better. We don’t recommend long-term income funds or gilt funds due to their risk. Given the pedigree of the fund house, you can invest in this fund if it fits your portfolio needs.
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