|
An investor failing to see any perceptible difference
between two offerings from the same fund house isn’t entirely uncommon. In
fact, it’s a rather common phenomenon in the context of the Indian mutual
fund industry, given fund houses’ penchant for new fund offers (NFOs). At
one point in time, NFOs had become synonymous with refurbished versions of
existing schemes. The regulator stepped in and introduced a regulation
that required the Board of Trustees to certify if the NFO was truly a
‘new’ offering, distinct from the existing offerings of the fund house.
At Personalfn, we have received many client queries
pertaining to two funds from Franklin Templeton Mutual Fund i.e. Franklin
India Prima Plus (FIPP) and Franklin India Flexi Cap (FIFC). Investors
want to know if the funds are different and what are their investment
propositions. In this note, we profile both the funds and discuss whether
these funds can add value to a portfolio.
Franklin India Prima Plus
Launched in September 1994, FIPP is the older of the two funds. To
begin with, the fund was positioned as an opportunities/flexi cap fund.
Then, its investment style stated that the fund would invest in wealth
creating companies across sectors and market segments; wealth creating
companies being defined as ones that generate return on capital in excess
of their cost of capital.
However, the fund’s positioning underwent a change in
January 2005. The flexibility to invest in stocks across market segments
was discontinued. At present, the fund is positioned as a predominantly
large cap fund that invests a smaller portion of its corpus in mid cap
stocks. However, its proposition of investing in wealth creating companies
remains unchanged. Also it invests in high growth companies from emerging
sectors.
Franklin India Flexi Cap
March 2005 saw the launch of FIFC, Franklin Templeton’s ‘all-weather’
fund. Until then, the fund house’s arsenal was dominated by Franklin India
Bluechip (a ‘true-blue’ large cap fund) and Franklin India Prima (a mid
cap fund). FIFC combined both the aforementioned offerings in a single
investment.
The fund can invest in large cap stocks (20%-100% of
assets), mid cap stocks (0%-70%) and small caps (0%-40%). Clearly, the
fund’s mainstay is its fluid investment style.
Are the funds comparable?
The investment proposition offered by the funds is about as similar as
chalk and cheese. While FIPP is bound by its mandate to hold a
predominantly large cap holding, FIFC has no such restrictions. FIFC is
free to invest in stocks from across market segments.
However, investors may perceive an overlap in their
investment styles when FIFC holds a large cap-dominated portfolio. This
has been the case for a better part of FIFC’s existence, thereby leading
investors to believe that both the funds are comparable or pursue similar
investment styles. However, FIFC can invest upto 70% in mid caps and this
sets it apart from FIPP (which can’t invest that much in mid caps) in a
big way.
Let’s take the discussion forward by studying how the
funds have performed on factors like net asset value (NAV) appreciation
and risk parameters.
The face-off
| |
NAV
(Rs) |
6-Mth
(%) |
1-Yr
(%) |
3-Yr
(%) |
5-Yr
(%) |
Since
Incep.
(%) |
Std.
Dev.
(%) |
Sharpe
Ratio
(%) |
|
Franklin Prima Plus (G) |
158.46 |
15.8 |
55.8 |
49.9 |
46.2 |
25.3 |
8.80 |
0.36 |
| Franklin Flexi Cap
(G) |
23.54 |
14.5 |
44.8 |
- |
- |
44.4 |
8.47 |
0.35 |
| S&P CNX 500 |
|
16.3 |
44.0 |
42.8 |
36.2 |
|
|
|
|
(Source: Credence Analytics. NAV data as on July 9, 2007. Growth
over 1-Yr is compounded annualised. Sharpe Ratio is a measure of the
returns offered by the fund vis-à-vis those offered by a risk-free
instrument. Standard deviation highlights the element of risk
associated with the fund.) |
NAV performance
FIFC is yet to complete 3 years of existence, which we consider as the
minimum investment horizon for evaluating equity investments. However, in
its short existence, FIFC has pitched in a competent performance. Since
inception in March 2005, it has clocked a growth of 44.4% CAGR (compounded
annualised growth rate).
Over the 1-Yr period, FIPP (55.8%) steals the march
over FIFC (44.8%). Both the funds have outscored their benchmark index
i.e. S&P CNX 500 over this time frame. FIPP has scored over its benchmark
over the 3-Yr and 5-Yr periods as well.
Risk parameters
FIFC (Standard Deviation 8.47%) has pitched in a better performance on
volatility control vis-à-vis its peer i.e. FIPP (8.80%). Sharpe Ratio
measures the returns delivered per unit of risk borne. Both the funds have
pitched in comparable performances on this parameter.
What should investors do?
Should investors add both/any of the two funds to their portfolios? Well,
that would depend on the investor’s risk appetite, investment objective
and existing portfolio, among a host of other factors. At Personalfn, we
have always maintained that a ‘one size fits all’ approach doesn’t work
while investing. An investment avenue that is apt for one investor could
be grossly unsuitable for another. Investors would do well to consult
their investment advisor/financial planner to determine the suitability of
FIPP and FIFC in their portfolios. |
