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.
 

• For a pointed recommendation on these funds, subscribe to FundSelect
   

  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.

Add Comments