Franklin Templeton is launching a new fund named Franklin Templeton Fixed Tenure Fund - Series 1 (FTFTF) 60 Month Plan. FTFTF (60 Month Plan) is a closed-end income fund that seeks to provide investors steady returns.
The scheme would invest at least 70 per cent in debt instruments that mature in line with the duration of the plan.
So whether interest rates go up or down during the course of the scheme, the fund will earn the prevailing interest (yield) with little risk of capital loss. The remainder will be invested in equities to perk up returns.
Ravi Mehrotra, president (India), says, "We believe that 60 Month Plan is a unique product that blends stability of fixed income instruments with the potential of equities. Over the past few years, on the back of falling interest rates investors have seen their returns from traditional savings products slipping."
"The recent volatility in the debt markets has resulted in very few choices for investors with a long-term horizon who are looking for competitive returns that will help them cope with the rising inflation. The 60 month plan with its predominantly conservative debt portfolio with a slice of equity helps investors in achieving steady returns, taking advantage of the growth potential of equities through a single investment."
Speaking about the investment strategy of the fund, Sukumar Rajah, chief investment officer (equity) and Sameer Kulkarni, head (fixed income), added, "Given the strong economic and corporate fundamentals, the marginal exposure to equities should help the portfolio in achieving higher risk-adjusted returns."
Since investments in debt funds are eligible for indexation benefit, they turn out to be far more tax-efficient than bank and corporate fixed-deposits. Redemptions are allowed on a half-yearly basis.
However, the charges are exorbitant. This fund is strictly for those willing to commit money for the entire five-year tenure, looking for superior tax-adjusted returns.
The yield on five-year government securities is currently 6.67 per cent while the same for AAA corporate bonds is 7.32 per cent, for AA+ is 7.55 per cent and for AA is 7.87 per cent.
In other words, Franklin's debt portfolio, which will be about 70 per cent, will fetch returns in the range of 6-7 per cent after deducting fund management expenses.
Anything over and above that will have to come from the 30 per cent equity portion. To be sure, Franklin Templeton has been one of the finest fund managers in the equity category for many years now.
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