Franklin India Overnight Fund: Should You Park Your Money For Short-term Needs?
May 08, 2019

Author: Aditi Murkute

(Image source:Image by Tumisu from Pixabay )

After the defaulting episodes of IL&FS and DHFL, many liquid funds posted steep losses as they were having exposure to these companies. It made the investors aware that debt fund investment isn’t completely risk-free.

While liquid funds were widely perceived to be a safe and better alternative to short-term deposits offered by banks, their popularity has waned in recent times.

Investors have become more conservative and vying for options that are less risky. And the overnight fund is a plausible choice.

Overnight fund is a category of debt scheme emerged after the SEBI's recategorization norms.

It has the shortest investment duration of one day and provides better returns than bank FDs and are more liquid. The interest rate risk involved therein is near zero. However, there can be a reinvestment risk, i.e. overnight funds may not be able to reinvest their proceeds at the same rate of return, but at least that doesn't cause any capital erosion.

On the risk-return spectrum, overnight funds are placed lower that carries the least amount of investment risk.

Graph:Indicative Risk Return Matrix -Debt Categories


(Source: PersonalFN Research)

Several fund houses saw this as an opportunity to win back investors’ confidence with respect to debt fund investments

Franklin India Mutual Fund joined the bandwagon and launched an open-ended debt scheme, Franklin India Overnight Fund (FIOF). It will invest predominantly in debt & money market instruments having a maturity of one business day.

Thus, it is suitable for conservative investors who want to park their money for a time period of one month or less than a year.

Table 1: NFO Details

Type An open-ended debt scheme investing in overnight securities. Category Overnight Fund
Investment Objective The Scheme intends to provide reasonable income along with high liquidity by investing in overnight securities having a maturity of 1 business day.
There can be no assurance that the investment objective of the scheme will be realized
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 1,000 per unit
  • Direct*

  • Regular

*Default option
  • Growth*

  • Dividend

  • Re-investment Facility

  • Pay-out Facility

*Default option
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Pallab Roy and Mr Umesh Sharma Benchmark Index CRISIL Overnight Index
Issue Opens May 7, 2019 Issue Closes: May 8, 2019
(Source: Scheme Information Document)

How will franklin India Overnight Fund allocate its assets?

Under normal circumstances, the scheme's asset allocation pattern will be as under:

Table 2: FIOF's Asset Allocation

Instruments Normal Allocation# Risk Profile
Debt & Money Market Instruments including cash & cash equivalent^ with residual maturity up to one business day Up to 100% Low
^Investment in Securitized debt up to 10%
#The scheme may have exposure in the following:
  1. Repos in corporate debt securities in accordance with the directions issued by RBI and SEBI from time to time.
  2. Securities Lending - A maximum of 40% of net assets may be deployed in securities lending and the maximum single party exposure may be restricted to 10% of net assets outstanding at any point of time.
The Scheme shall not engage in securities borrowing and short selling activities. The Scheme shall not invest in REITs, InvITs, foreign securities and foreign securitized debt.
It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of the Investment Manager, the intention being always to seek to protect the interests of the Unitholders. The asset allocation pattern described above may alter from time to time on a short-term basis on defensive considerations, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors (i.e., for reasons other than downgrade in rating) and would, in such cases, shall be rebalanced within 7 days from date of deviation. However, if the asset allocation pattern is to be altered for other reasons, as this is a fundamental attribute, the procedure outlined in the paragraph on fundamental attributes below, shall be followed.
(Source: Scheme Information Document)

What will be the Investment Strategy?

The primary objective of the scheme is to provide reasonable income along with high liquidity by investing in overnight securities having a maturity of 1 business day. The scheme strives to provide steady income and high liquidity through a judicious mix of short-term debt and money market instruments.

The scheme aims to identify securities in the short-term instruments including Tri-Party Repos (TREPS), Reverse repos, debt instruments with overnight maturity. The scheme intends to hold short-term securities to minimize price volatility.

Who will manage the Franklin India Overnight Fund?

The Franklin India Overnight Fund will be managed by Mr Pallab Roy and Mr Umesh Sharma.

Mr Pallab Roy is an Assistant Vice President and Portfolio Manager of Fixed Income at the AMC. He holds a master's degree in commerce from Rani Durgavati University, Jabalpur and earned his M.B.A from IMS(UD), Devi Ahilya University Indore and diploma in business finance from ICFAI, Hyderabad. He has a total work experience of 17 years in investment and research.

Mr Roy has been associated with Franklin Templeton Asset Management (India) Pvt. Ltd. since June 2001 and is responsible for Liquidity Management & Portfolio MIS of Fixed Income funds.

Currently, some of the other schemes managed by him at the fund house include, Franklin India Floating Rate Fund, Franklin India Liquid Fund, Franklin India Savings Fund and Franklin India Ultra-Short Bond Fund

Mr Umesh Sharma is currently the Vice President and Portfolio Manager of Fixed at Franklin Templeton Asset Management (India) Pvt. Ltd. and has 18 years of work experience in investment and research in the Indian financial service industry.

Mr Sharma is a qualified Chartered Accountant and a Company Secretary. He is a Chartered Financial Analyst (CFA) Charterholder from Association of Investment and Management Research, USA.

Prior to joining Franklin Templeton Mr Sharma has worked with Religare Asset Management Company Pvt. Ltd., (erstwhile Lotus India Mutual Fund) as a Portfolio Manager responsible for managing fixed income bond portfolios for four years. Before that, he has been associated with ICICI Bank, JM Financial Mutual Fund and UTI Mutual Fund.

Currently at the fund house Mr Sharma manages Franklin India Government Securities Fund, Franklin India Dynamic Accrual Fund, Franklin India Banking & PSU Debt Fund, Franklin India Floating Rate Fund, Franklin India Corporate Debt Fund, Franklin India Liquid Fund, Franklin India Savings Fund, Franklin India Debt Hybrid Fund (Debt portion), Franklin India Equity Hybrid Fund (Debt Portion), Franklin India Pension Plan (Debt Portion) and Franklin India Fixed Maturity Plans-Series 1 to Series 6

Table 3a: Performance of schemes managed by Mr Pallab Roy and Mr Umesh Sharma

Scheme Name SI Benchmark Name Managing Since Scheme Return (%) Benchmark Return (%)
Franklin India Floating Rate Fund Crisil Liquid Fund Index Jan-2011 6.64 8.08
Franklin India Savings Fund Jun-2008 8.07 7.58
( Performance as on May 8, 2019)
(Source: ACE MF)

Table 3b: Performance of schemes managed by Mr Umesh Sharma

Scheme Name Benchmark Name Managing Since Scheme Return (%) Benchmark Return (%)
Franklin India Banking & PSU Debt Fund Crisil Composite Bond Fund Index Apr-2014 8.14 8.89
Franklin India Dynamic Accrual Fund Jul-2010 8.67 8.01
Franklin India Corp Debt Fund Crisil Short Term Bond Fund Index Jul-2010 9.05 8.18
(Performance as on May 8, 2019)
(Source: ACE MF)

Table 3c: Performance of scheme managed by Mr Pallab Roy

Scheme Name Benchmark Name Managing Since Scheme Return (%) Benchmark Return (%)
Franklin India Ultra Short Bond Fund Crisil Liquid Fund Index Dec-2016 8.73 7.17
(Performance as on May 8, 2019)
(Source: ACE MF)

As can be seen, the funds managed by fund managers have marginally outperformed than the Benchmark, hence the management style is modest.

The outlook for Franklin India Overnight Fund:

Franklin India Overnight Fund intends to achieve the objective by investing predominately in overnight securities. So, the fund managers may invest in securities that could be listed, unlisted, publicly offered, privately placed, secured, unsecured, rated or unrated.

The securities may be acquired through public offerings (IPOs), secondary market operations, private placement, rights offer or negotiated deals. It may also enter into repurchase and reverse repurchase obligations in all securities held by it as per the guidelines and regulations applicable to such transactions.

Government and Public Sector Enterprises are the predominant borrowers in debt markets. Initially, the debt markets were regularised, and the interest rate was in line with the repo rates. But lately there has been rapid deregulation and currently, both the lending and deposit rates are market determined.

Hence, the actual yields of the Franklin India Overnight Scheme will vary in line with general levels of interest rates and debt/money market conditions prevailing from time to time. Franklin India Overnight Fund will be sensitive to systemic liquidity. Excess liquidity may drag the potential return down and vice-versa.

However, if you are extremely conservative and wish to park money for the very short-term, say from day to a week, one can consider an overnight fund as a substitute for holding money in a savings bank account.

PS : If you are looking for funds that carry a Potential to Beat the market by as much as 70%! Subscribe to PersonalFN's 'FundSelect' service. It is a credible mutual fund research service with a track record of more than 15 years.

Once you subscribe to FundSelect, you will get instant access to potentially the best equity and debt mutual fund to invest and even recommendations on the ones to 'Hold' and 'Sell'.

Click here to know more
This article first appeared on Certified Financial Guardian.

Add Comments

Aug 22, 2019

I want to tell the worlds, that the illuminati is real because i have see the benefit of being a member of illuminati, i have tried to join the illuminati some many times, i have been scammed alot of money, but i did not give up because i know if i find the real illuminati, my life will be changed forever so i did not stop, on till i find the real illuminati official email and phone number, if you want to join the real illuminati, i want you to know that i can direct you to the really illuminati official email and phone number, brothers/sisters who is interested or who have be scammed so many times like me, that still have interest to join the illuminati because you believed that if you join your life will be changed, you do not have to worry about anything because i am here to show you all the right way to join the real illuminati, i want you all to know that to join the real illuminati it is free, you will not be ask to pay for any fee, all the process is free to join the illuminati, because when i joined the real illuminati i did not pay for any fee, when i was totally initiated to the illuminati, i was given so many benefits as a new member, i can tell you one of the benefits i was give an instant $2,000,000.00 to start a new life, brothers/sisters that have interest to join the illuminati, this is the real illuminati official email: and the illuminati phone call center or WhatsApp number is +1 (508) 819 2672 you can contact the illuminati official email or WhatsApp number of how to join, if is free to join the illuminati.

Daily Wealth Letter

Fund of The Week

Knowledge Center

Money Simplified Guides (FREE)

Mutual Fund Fact Sheets

Tools & Calculators