This is a review of Franklin India Savings Fund, an open-ended money market mutual fund that invests in bonds of up to one year and aims to lower interest rate fluctuations with low to moderate credit rating risk.
This fund can be considered by investors wanting a little more (potential) return than liquid funds without taking on too much credit rating risk (low-quality bonds) or interest rate risk (longer duration bonds, that fluctuate in value). The fund has been part of my handpicked List of Mutual Funds October 2019 (PlumbLine)
I had previously reviewed the fund in 2017 when it was a floating rate fund. Launched in Feb 2002 as Franklin Savings Plus Fund, it became a money market fund from June 2018. According to Franklin, the fund currently has more than 8290 unique investors.
Since the fund has a significantly lower credit rating risk profile than the crowd favourite reviewed last week, Franklin India Ultra Short Bond Fund (Review: When and how to invest), I believe the fund is suitable for first-time debt mutual fund investors with an investment duration of at least one year.
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What is a money market instrument? The money market refers to the lower duration segment of the bond market. According to SEBI MF rules (page 8),
money market instruments include commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time;
The value of bonds in this segment do not fluctuate much when interest rates change.
Franklin India Savings Fund: Basic Scheme Details
Type
Open-ended scheme
Asset
Debt
Category
Money Market (MM)
Inception Date
11-Feb-2002, Change from floating rate fund to MM fund from 4th June 2018
Objective
To provide income and liquidity consistent with the prudent risk from a portfolio comprising of money market instruments.
Minimum Investment
10000
Incremental Investment
1000 SIP Rs. 500
Exit Load
0
Expense Ratio
0.28% Reg 0.15% Direct
Benchmark
Crisil Liquid Fund Index (Benchmark)
Additional Benchmark
Crisil 1 Yr T-Bill Index (Benchmark)
Average Assets under Management (AAUM) for the quarter of July – September 2019 (Rs in Lakhs)
Source: AMFI
Daily Dividend option
8663.4
Daily Dividend option – Direct
1226.73
Direct-Growth
120877.27
Direct – Monthly Dividend
406.2
Direct – Quarterly Dividend
133.66
Dividend Option
3733.11
Growth Option
99309.66
Institutional Option – Dividend (closed)
1054.71
Monthly Dividend
830.69
The direct AUM has a 52% share in the total AUM. Pallab Roy has been the fund manager since June 2008 and Umesh Sharma since Oct 2018. Just like most funds in this category, the fund heavily buys banking and finance bonds.
Top 10 Sector – Holding (%)
Franklin India Savings Fund(G)
Money Market category
Bank
50.09
49.42
Finance
49.02
36.92
Retailing
1.16
0.28
Investors should clearly understand that because of the ongoing credit problems in the non-banking financial space, this or any other money market fund can run into trouble. In fact, this fund did hold DHFL bond but exited before it ran into trouble. As far as I could tell, as on date, there are no credit rating downgrades associated with the bonds of this fund let alone credit defaults.
Type of bonds held
After the fund changed to a money market funds, it no longer holds corporate debt. The majority of holdings are in bank certificates of deposit and commercial paper.
Rating Profile History
The fund now only holds the highest rated short-term bonds (A1+ or two notches down) and some cash after the SEBI categorization rejig.Maturity Profile History
After the change to a money market fund, most of the bonds now mature within a year.
The fund house claims “The recommended investment horizon is 1 month and above”. This is complete nonsense. If I want money in two months, the fund will be strongly prone to yield changes (demand and supply in the market) as you can see below.
Monthly Rolling Returns of Franklin India Savings Fund
If you want money in a few months, use a liquid fund. Do not use this fund! These fluctuations will significantly stabilize with an increase in duration. So do not use unless your need is one year or more.
Expense Ratio History
With the fund having a strong direct AUM (most likely from HNI and corporate investors), the AMC will not decrease expenses significantly. The gap between regular and direct plans have come down over time. Hard to tell if this a good or bad development! Sorry about the jumbled x-axis. This is for the last 20 months up to Sep 2019.
Who should invest in Franklin India Savings Fund and how?
First-time debt mutual fund investors with a need more than a year away, capable of taking on moderate credit risk -higher than liquid funds, but lower than an ultra short term fund with low-quality bonds can consider this fund. SIP option can be used like an RD.
A lump sum that is either intended to be deployed in the stock market or just parked until a use or use date is determined can also be invested. Those in the 30% slab can consider the dividend reinvestment option for a marginal benefit for less than three year periods.
The fund can also be used to derive monthly income via SWP. However, all investors must recognise the associated credit and interest rate risks. In the absence of big market changes, you can expect a pre-tax return a bit above liquid funds and comparable to (or at times better than) a bank FD. For the short term, this may not seem much but will make a difference beyond three years due to indexation benefits associated with long term capital gains tax @20% (plus surcharge and cess)
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