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Over four years since the Franklin India Mutual Fund abruptly wound up six of its debt mutual fund schemes, the fund house is once again making a comeback by relaunching debt mutual fund schemes – this time with the launch of Franklin India Medium to Long Duration Fund (FIMLDF).
During the NFO period, the Scheme is open for subscription from September 3, 2024, to September 17, 2024. Thereafter the scheme re-opens for subscription on September 24, 2024. Thereafter the scheme re-opens for subscription on September 26, 2024.
Here’s what Mr. Avinash Satwalekar, President of Franklin Templeton Asset Management (India) Private Limited, say about the launch of the fund:
“We are expanding our fixed income range, having identified gaps spanning major categories in the high credit space. FIMLDF caters to investors looking for a product that can adapt to market cycles and invest in quality debt instruments.”
Franklin India Medium to Long Duration Fund is an open-ended medium-term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 4 years to 7 years.
The launch of this Scheme is at a time when the interest rates in the economy have sort of peaked and plateaued.
The RBI, as may know, has increased the policy repo rate by 210 basis points (bps) from May 2022 (in an off-cycle monetary policy meeting) and since April 2023 has maintained a status quo thus far.
Going forward, if inflation comes down, the RBI could gradually begin to cut rates. In fact, in the last bi-monthly monetary policy meeting held between August 6 to 8, 2024, two out of the six members voted in favour of reducing the policy repo rate by 25 bps and changing the stance to neutral.
What it means that given some disinflation in the headline CPI inflation and two members already voting in favour of rate cut and change in monetary policy stance, in the next bi-monthly monetary policy meeting, scheduled from October 7, 2024, to October 9, 2024 -- just ahead of Dussehra and Diwali -- the RBI could reduce the policy repo rate by around 25 bps.
The fund is strategically launched at an opportune time allowing investors to take exposure to the longer end of the yield curve -- where the Macaulay duration of the portfolio is between 4 years to 7 years -- and before the interest rates in the economy begin to reduce.
The Macaulay Duration (named after Frederick Macaulay) is the weighted average term-to-maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.
The Franklin India Medium to Long Duration Fund under normal circumstances will allocate up to 100% of its total assets in debt & money market instruments, cash & cash equivalents, including government securities. The exposure to securitised debt could be 30% of its total assets.
The Scheme may also invest a maximum of 40% of net assets in securities lending and the maximum single-party exposure may be restricted to 10% of net assets outstanding at any point in time.
Further, the Scheme may invest up to 50% of its total assets outstanding in debt derivatives, but the cumulative gross exposure through debt and derivative positions will not exceed 100% of the net asset of the Scheme. And the derivative exposure for non-hedging purposes will be nil.
The Scheme may also invest up to 10% of the net assets in debt instruments with special features viz. subordination to equity (absorbs losses before equity capital) and /or convertible to equity upon trigger of a prespecified event for loss absorption (For e.g., Additional Tier I bonds and Tier 2 bonds issued under Basel III framework). However, not more than 5% of the net assets will be instruments issued by a single issuer.
Furthermore, the Scheme may invest up to 10% of the debt portfolio in debt instruments with credit enhancement/ structured obligations. However, the group exposure in such instruments shall not exceed 5% of the debt portfolio of the Scheme.
Up to 10% of the total assets may be invested in repo transactions in corporate debt securities.
The Franklin India Medium to Long Duration Fund will not engage in short selling, credit default swap transactions, nor invest in units of REITs InvITs, foreign securities, and units of mutual funds.
What Is the Investment Objective?
The investment objective of the scheme is to generate returns by investing in debt and money market instruments such that the Macaulay duration of the scheme portfolio is between 4 to 7 years.
However, there can be no assurance that the investment objective of the Scheme would be achieved.
What Is the Investment Strategy?
To achieve its stated investment objective of generating medium to long-term capital appreciation with income by investing in debt and money market instruments such that portfolio Macaulay Duration is between 4 to 7 years, the portfolio will be actively managed to generate income while aiming to achieve an optimal balance between yield, safety and liquidity.
As regards exposure to derivative products is concerned, it should be noted that derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and the decision of the fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.
The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.
How Will the Scheme Benchmark Its Performance?
Franklin India Medium to Long Duration Fund will benchmark its performance against the CRISIL Medium to Long Duration Debt A-III Index.
Who Will Manage Franklin India Medium to Long Duration Fund?
Ms. Chandini Gupta and Mr. Anuj Tagra will co-manage the Scheme.
Chandini is the Vice President - Portfolio Manager, Fixed Income at Franklin Templeton Asset Management Company. She joined Franklin Templeton AMC in March 2024 and before that was with ICICI Prudential Asset Management Company as a fund manager for fixed income investments (from November 2013 to February 2024). She has a total work experience of 18 years and holds a bachelor’s degree in engineering with a specialisation in Information Technology (B.E. – IT) plus is a Chartered Financial Analyst (CFA) from CFA Institute, USA. At Franklin Templeton AMC, Chandini co-manages several other debt schemes.
Anuj is also the Vice President - Portfolio Manager, Fixed Income at Franklin Templeton Asset Management Company. He too joined Franklin Templeton AMC in March 2024 and before that was with ICICI Prudential Asset Management Company Franklin Templeton AMC in March 2024 and before he was with ICICI Prudential Asset Management Company (from February 2013 to March 2024). He has work experience of 17 years and holds an MBA in Finance. At Franklin Templeton AMC, with Chandini, he co-manages several other debt schemes.
Here’s what Ms. Chandini Gupta, Vice-president and Portfolio Manager at the AMC said about the fund speaking to the media:
“FIMLDF will be dynamically managed, allowing it to adjust its duration exposure in response to changing macro environment, and it may be an ideal investment option for investors looking to deploy money in fixed income funds as a part of their strategic investment allocation."
How much is the Minimum Investment in Franklin India Medium to Long Duration Fund?
The minimum initial investment amount is Rs 5,000/- and in multiples of Re1/- thereafter.
The subsequent minimum investment amount under a folio is Rs 1,000/- and in multiples of Re.1/- thereafter with no upper limit.
For the Systematic Investment Plan (SIP), the minimum instalment amount is Rs 500/-.
The Scheme offers both, the Direct Plan and Regular Plan for investment with growth and IDCW option. If the plan is not stated at the time of investment, the Direct Plan with Growth Option will be considered by default.
Who Should Consider Investing in Franklin India Medium to Long Duration Fund?
This scheme is a worthy choice who wish to take exposure to the longer end of the yield curve with a maturity profile of 4 to 7 years with a diverse mix of sovereign and high-quality corporate bonds with a focus also on the liquidity of the portfolio. With this strategy, the Scheme shall aim for income accrual and potential capital gains.
The scheme is suitable for investors with a moderate to moderately high-risk profile. Note that during a rising interest scenario, the risk gets accentuated and the return potential is limited. Hence it’s important to keep an investment time horizon of 3 to 5 years when investing in a medium-to-long-duration debt fund.
[Read: 3 Best Medium-to-Long Duration Debt Funds for 2024]
To know more about the Franklin India Medium to Long Duration Fund, read the Scheme Information Document and Key Information Memorandum.
Happy Investing!