Franklin India Savings Plus Fund can be classified as an ultra-short term debt mutual fund that invests predominantly in floating rate bonds (to minimise interest rate sensitivity) of reasonably good credit quality, making it a reasonable candidate for first-time debt mutual fund investors to consider. In this post, I look at the main characteristics of the fund. This post is not a recommendation to invest in this fund. It is a recommendation to learn more about this fund.
In a normal bond, the interest rate payments remain the same while its current market price varies according to supply and demand dictated by interest rate movements. In a floating rate bond, the prize remains close to its issue price, but the interest payments are periodically reset according to interest rate movements. So this reduces a drastic change in NAV of a fund holding these bonds.
There are many ways in which floating rate bonds can be used and some of these have been explained in a previous post: How Floating Rate Debt Mutual Funds Reduce Interest Rate Risk. Although I had not recommended investing in such funds before, I believe an exception can be made for Franklin India Savings Plus Fund.
The scheme information document says the fund will have a minimum exposure of 65% to floating rate bonds. A look at past fund sheets reveals that the portfolio credit quality is reasonably high.
It is important for investors to understand that a fund with 100% AAA rated bonds is not safe from credit rating changes. The NAV will fall if an AA+ rated bond is downgraded to AA- (or AAA to AA), the NAV will fall. As long as the fund manager does not wait for further downgrades and gets rid of the bad bonds before there is an actual default, the fund will recover. We should be aware or risk, not run away from it.
Here are a couple of snapshots from the Franklin India Savings Plus Fund factsheet
Average portfolio maturity and modified duration history
For a normal debt fund, the average maturity profile of the bonds in the portfolio and a quantity known as the modified duration provide a measure of how sensitive the fund will be when interest rates change. Higher the average maturity, higher the modified duration and higher the fluctuations when rates change.
In a floating rate fund, this dependence is not so exact as the market value of a floating rate bond is not as sensitive to rate changed. Here is a history of both quantities for this fund.
Although they change from month to month, the values are still comfortably lower. The credit quality for each of these months was also reasonably high.
Franklin India Savings Plus Fund Daily NAV change
It is important for debt mutual fund investors to recognise range over which the daily NAV can vary.
While most variations are positive and around + 0.02%, there were some wild variations, especially during the July 2013 bonds crash. The advantage with low average maturity is that the recovery will be faster.
Franklin India Savings Plus Fund Rolling 1 year returns
Around 2400 1-year returns from April 2006 to Mar 2017 are plotted above (blue) and compared with a liquid floater fund. Notice that returns can swing quite a lot. So I would peg my expectations at about 6-7%.
The fund has no exit load but has a first investment requirement of 10,000, followed by 1000 and above. I would recommend using it for any duration above 1 year.
New Delhi DIY Investor Workshop April 23rd 2017
You Can Be Rich Too With Goal-Based Investing
Happy to announce that my book with PV Subramanyam has been selected as part of Amazon Best Reads Mar 2017. Thank you for your support and trust. If you have not yet got the book, check out the reviews below and use the links to buy.
Gift it to your Friends and Relatives whom you care more. Already follower of Pattu and Subra's forum. Ordered 4 more copies to give gift to my friends and eagerly waiting to read
The best book ever on Financial Freedom Planning. Go get it now!
Your first investment should be buying this book
The (nine online) calculators are really awesome and will give you all possible insights
Thank you, readers, for your generous support and patronage.
Amazon Hardcover Rs. 399.
Kindle at Amazon.in (Rs. 307)
Infibeam Now just Rs. 307 24% OFF.
If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!
Amazon.com ($ 3.70 or Rs. 267)
Google Play Store (Rs. 244.30)
- Ask the right questions about money
- get simple solutions
- Define your goals clearly with worksheets
- Calculate the correct asset allocation for each goal.
- Find out how much insurance cover you need, and how much you need to invest with nine online calculator modules
- Learn to choose mutual funds qualitatively and quantitatively.
More information is available here: A Beginner's Guide To Make Your Money Dreams Come True!
What Readers Say
Subscribe to get posts via email
|You Can Be Rich Too With Goal-based Investing A book that can help you ask the right questions about money and find simple solutions. Comes with nine online calculator modules. Read more about the book and order now!|
GameChanger - Forget Startups, Join Corporate & Still Live The Rich Live You want Take that international trip at 50% lower costs! Optimise credit card usage! Set money management on auto-pilot! Read more about the book and order now!