Franklin India Low Duration Fund - Rating & Review - Best and Cheapest Credit Fund

Franklin India Low Duration Fund – Rating & Review – Best and Cheapest Credit Fund

Roboadviso     Mutual Funds Rating     Posted On, Wed 19th July, 2017     No comments
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Franklin India Low Duration Fund is a scheme that seeks to achieve regular and steady income via investment in a portfolio comprising of a combination of short term debt securities and domestic fixed income and money market instruments, while ensuring that the duration is kept low.

Investors in the fund should ideally remain invested for 12 months and above to get good returns. The fund is a good alternative to short term deposits and is suitable for parking of short-term funds and regular secondary income.

Presented below is a comprehensive review of this fund which will provide you with all the relevant information that you need to make a better choice about whether to buy, sell, or hold this fund.

Basic costs and other information

Franklin India Low Duration Fund was launched on July 26, 2010. Over the period of the past 7 years since the launch, the fund has been both popular and successful. As of June 30, 2017, this debt-focused fund has assets of INR 4,236 crores. The minimum required investment for lump sum investment route is INR 10,000, while the Minimum Withdrawal and Minimum SWP Withdrawal limits are 1,000.

The expense ratio as of 30th June 0017 is 0.78 percent. If investors redeem their fund investment within a period of 90 days of holding it, then the exit load is 0.5%.

Kunal Agrawal and Santosh Kamath have been the fund managers of Franklin India Low Duration Fund since April 2014.

Kunal Agrawal has done his B.Tech from IIT Delhi and holds a PGDM from IIM Kolkata. Before working for Franklin India AMC, he worked for CRISIL Ltd., Credits- Portfolio Management, Infosys Ltd., and IBM Ltd. Other funds managed by him include Franklin India Short Term Income Plan – Retail Plan.

Santosh Kamath holds a B.E (Electronics) degree from REC Bhopal and a PGDM in Management from XLRI Jamshedpur. His previous work experience includes Zurich Asset Management, ING Vysya AMC, SBI Mutual, Jardine Fleming Asset Management, and CRISIL. Other funds managed by him include Franklin India Corporate Bond Opportunities Fund; Franklin India Short Term Income Plan – Retail Plan; Franklin India Income Builder Fund; Franklin India Dynamic Accrual Fund; and Franklin India Income Opportunities Fund

Allocation of the fund

As of 30th June 2017, the fund’s allocation stands as 81.24 percent in debt, 16.40% in money market, and 2.40% in Cash/Call. As of June 30, 2017, the focus of the fund’s portfolio is on Corporate Debt (80.62%), Money Market Instruments (16.4%), PFI/PSU Bonds (0.59%), and Other Assets (2.4%).

As of Jun 30, 2017, the top 6 instruments that make up the fund portfolio include Yes Bank-Bonds (4.22%); Export-Import Bank 313-D 14/03/2018-Commercial Paper (3.38%); DLF 2018-Debenture (3.23%); Sprit Textiles 2019-Structured Obligation (3.05%); Sterlite Industries 2023-Debenture (2.97%); and Reliance Project Ventures & Management 2017-Debenture (2.97%).

Performance

As of July 14, 2017, Franklin India Low Duration Fund has produced a 9.75 percent return per annum on investment in the last 5-year period. This shows that the fund beat the category average of 8.84 percent for the same period. From the time of launch the fund has delivered 9.62 percent per annum returns.

In the past 1 and 3 years period, the fund has shown 9.93, and 9.79 percent returns respectively. Thus the out performance margins of the fund vis-à-vis the category, on 3 and 1 year periods, are slightly better.

As per data of the past 3 years, the fund’s standard deviation, i.e., the volatility of the returns of the fund vis-à-vis its average, is 0.67% as of 30th June 2017. This is lower than the category average which is 1.43% for the same period. 

When the returns of Franklin India Low Duration Fund are compared with its peers during the past 5 year period, then at 9.75 percent returns it has performed nearly 1 percentage point better than other similar funds like Baroda Pioneer Short Term Bond Fund (8.97%), BOI AXA Short Term Income Fund – Regular Plan (8.62%) and HDFC Short Term Opportunities Fund (9.07%). When looking at the fund’s returns from a 3-year perspective, then the returns of other funds in the category, including Indiabulls Short Term Fund – Regular Plan (8.73%), are marginally poorer than Franklin India Low Duration Fund returns of 9.22%.

Analysis

The ‘Franklin India Low Duration Fund’ process of investments in varied structured debt or sub-AAA rated bonds is research driven and well-defined. This adds strength to the prospects of the fund.

The fund actively pursues securities that are under priced as well as those that offer attractive returns, which tends to take it downwards of the credit ladder. The process consists of exhaustive quantitative and qualitative analysis to find the credit worthiness of different companies, it follows a regular norm pattern of portfolio construction, and carries out stress tests on regular basis to anticipate different downside risks, especially that of portfolio liquidity.

Also, allocation to securities with sub-AAA ratings is considerably above the norm. For example, in Sep 2016, the fund’s portfolio consisted of 76 percent of sub-AAA paper vis-à-vis the category average of just 17 percent. The fund managers are not afraid of using such contrarian strategy if the ratio of reward/risk is favorable. In such a scenario, incorrect investments can result in extensive under performance, but the research intensive approach of the fund goes a long way in mitigating risks involved with use of such strategies.

Should I sell, buy, or hold?

Franklin India Low Duration Fund is one of the best funds in its category and has constantly had an edge over its peers and competitors from the time of launch. The performance across varied returns and risk parameters has been remarkable since inception. The consistent and strong performance since 2010 makes us give the fund a big thumbs-up. Our recommendation to investors who are comfortable investing in Credit Fund is – “Buy.”

Pros

Excellent Fund Manager
Excellent Fund House
Excellent Performance
Excellent Consistency
Excellent Fund Size
Low Expense Ratio

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