| Type |
Capital Protection
|
Benchmark |
CRISIL MIP Blended Index
|
| Min. Investment |
Rs 10,000 |
Face Value |
Rs 10 |
| Entry Load |
Nil |
Exit Load |
Nil |
| Issue Opens |
October 31, 2006 |
Issue Closes |
November 30, 2006 |
Franklin Templeton Capital Safety Fund is a capital protection oriented fund that endeavours to protect the capital by investing in high quality fixed income securities as the primary objective and generate capital appreciation by investing in equity and equity related instruments as a secondary objective.
*Source: Offer Document
| |
Franklin Templeton Capital Safety Fund (FTCSF) is the first offering from the capital protection oriented funds segment, launched in line with the guidelines issued by the Securities and Exchange Board of India (SEBI). Before we discuss the merits (and otherwise) of the fund and who should invest in the fund, there is a need to understand what capital protection oriented funds have to offer.
In a capital protection oriented fund, the portfolio is constructed in a manner to ensure that the investor receives the amount invested (principal) on maturity. For example, out of Rs 100 invested, the fund could invest Rs 80 in debt instruments which will amount to Rs 100 on maturity. Hence the fund by itself takes care of the "capital protection" part. The balance Rs 20 (Rs 100 less Rs 80) is invested in equities to clock growth. In effect, the investor is given an opportunity to participate in a market-linked investment avenue while keeping his capital protected.
It should be understood that the underlying intention is to protect the capital; hence returns are not assured or guaranteed. Similarly, SEBI's guidelines necessitate that the capital protection stems from the fund's portfolio structure and not from any bank guarantee or insurance cover among others. Hence there is no explicit "guarantee" for capital protection either.
Since FTCSF is a close-ended fund (with no exit option from the fund house), investors must only invest that portion of their money that can be set aide for 3/5 years. Firstly, the fund can make an apt fit in the low to moderate risk-taking investor's portfolio. The fund offers such investors an opportunity to invest in a market-linked investment avenue without compromising on their risk profile. Secondly, investors who are close to retirement can consider parking a portion of their retirement kitty in FTCSF. Finally, it will find favour with investors in the highest tax bracket. FTCSF holds the potential to offer better tax-adjusted returns vis-à-vis assured return schemes like fixed deposits and bonds.
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FTCSF offers two plans with 3-Yr and 5-Yr investment horizons. The 3-Yr plan can allocate upto 20% of its assets to equity/equity-linked instruments while the balance (80%-100%) can be held in debt and money market instruments. Conversely, the 5-Yr plan can invest a higher portion (upto 30% of assets) in equities/equity-linked instruments and between 70%-100% in debt and money market instruments.
| |
3-Yr Plan |
5-Yr Plan |
| Equity and equity-linked instruments |
0%-20% |
0%-30% |
| Debt and money market instruments |
80%-100% |
70%-100% |
The Asset Management Company (AMC) has indicated that the equity component will be comprised of stocks from across sectors and market segments. Meanwhile, the debt component will be populated by high quality debt instruments; hence, investments are likely to be made in AAA or similar rated instruments.
In line with the guideline which requires that the proposed portfolio structure be rated by a SEBI registered credit rating agency from the view point of assessing the degree of certainty for achieving the objective of capital protection, the AMC has obtained an AAA(so) rating from CRISIL.
|
Mr. Santosh Kamath, CIO-Fixed Income holds an engineering degree and a PGDBM. Before joining Franklin Templeton AMC in 2006, he was associated with ING Invest Management (India) Private Limited as CIO-Fixed Income and Zurich AMC (India) Private Limited as a Fund Manager. He has also had stints with CRISIL Limited among others. Mr. Kamath will be responsible for managing FTCSF's debt portfolio.
Mr. Satish Ramanathan, Vice President, Portfolio Manager and Senior Research Analyst, is a B. Tech and an MBA. He was associated with ICICI Securities and Sundaram Mutual among others before joining Franklin Templeton AMC. Mr. Ramanathan will manage FTCSF's equity portfolio
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At the outset, investors would do well not to confuse FTCSF with a monthly income plan (MIP) offering. An MIP professes to offer monthly income (albeit the same is not assured); FTCSF's underlying motive is to protect the capital invested, capital appreciation is a secondary motive. Hence investors should temper their expectations from the fund accordingly.
Secondly, investors must also ensure that they are invested for the appropriate time frame. Capital protection oriented funds are structured to deliver the capital invested on maturity; this explains why AMCs have been restricted from repurchasing units before the end of the stipulated time frame.
Franklin Templeton Mutual Fund has several mutual fund schemes that are proven performers in both the diversified equity funds (Franklin India Bluechip and Franklin India Prima) and debt-oriented funds (Templeton MIP and FT India MIP) segments in its portfolio. FTCSF can be expected to benefit from the same expertise and process-driven investment approach.
We believe that FTCSF's offering which combines the opportunity to invest in a market-linked investment avenue while preserving capital, makes it an interesting investment proposition. Investors with a low to moderate risk appetite who accord priority to capital preservation should consider adding the fund to their portfolios.
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