Prajna Capital

IDFC SSI Medium Term Plan A
Templeton India Equity Income
Birla Sun Life Frontline Equity

Posted: 04 Oct 2015 07:43 AM PDT

IDFC SSI Medium Term Plan - Invest Online

In recent months, gilt funds have kindled the interest of investors looking to participate in a possible rally in the debt market, when interest rates fall. But the illiquid nature of many of the government securities, their long-term maturity and the ensuing volatility make pure gilt funds less suitable for retail investors who cannot time their way in and out of these products.

But if you are still keen on taking some exposure to this segment of debt with relatively lesser risks than pure gilt funds, then IDFC Super Saver Income Fund Medium Term (IDFC SSI Medium Term) may be a good option. With a return of 9.3 per cent compounded annually over the last five years, the fund comfortably beat its benchmark Crisil Short Term Bond index return as well as category average return of 7.5 per cent annually. This return is also higher than Crisil 10-year Gilt index return of 6.1 per cent, suggesting that pure gilt may not return too well in the long term.

Suitability

Despite limited exposure to long-term gilt, IDFC SSI Medium Term requires some risk appetite on your part. For one, about a fourth of the portfolio is exposed to gilt. Any volatility in this segment or wrong forecast on interest rates can hurt fund returns. Two, the fund has a portfolio maturity of three-plus years. Instruments with longer maturity are more sensitive to interest rate movements. Three, the fund has a high proportion (60 per cent) in corporate bonds. While these have a rating of AA+ and above, they are not free of risks and do not have any sovereign guarantee.Overall, the fund will have a higher degree of interest rate risk, although it exhibits lower credit risk.The fund is suitable for investors with a time horizon of over two years. Ideally, we would prefer this fund to be part of your long-term portfolio. The fund has an exit load if you redeem within 9 months.

Performance

IDFC SSI Medium Term's rolling return record in the last three years was top notch, with the fund beating its benchmark 100 per cent of the time. That means, irrespective of when you had invested in the fund in the last three years, you would have beaten the benchmark. While the fund cannot boast of a similar record since its inception in 2003, to its credit, it has not had any negative-return stints on a one-year rolling return basis.

In the past year, quite a few income funds have managed 11-13 per cent one-year returns compared with IDFC SSI Medium Term's 10.2 per cent. Templeton India Income Builder is an example.

But the latter has managed this by not only donning a longer maturity profile but having instruments with slightly lower credit ratings compared with IDFC SSI Medium Term. That means those funds take on both interest rate risk and credit quality risk to generate higher returns.

On a rolling return basis though, IDFC SSI Medium Term's average one-year return (over three years) of 8.6 per cent is higher than some of the current chart toppers. This suggests that the current out-performance by peers may not always be sustained.

IDFC SSI Medium Term can be expected to benefit from any gilt rally that may happen before March 2013 if interest rate cuts happen.

Portfolio

The fund currently has 24 per cent of its assets in government bonds and 60 per cent in corporate bonds. The rest are in commercial papers and other short-term debt.

A good 86 per cent of the instruments held are AAA-rated. A number of corporate bonds are from PSUs such as REC and PFC, besides other NBFCs such as L&T Finance and Mahindra & Mahindra Financial Services. The fund is managed by Mr Anupam Joshi.

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Templeton India Equity Income

Posted: 04 Oct 2015 06:59 AM PDT

Templeton India Equity Income - Invest Online

Emerging markets, including India, do not offer too many 'value' or less expensive stocks, given their growth focus. If you wish to hold a portfolio of value stocks, mostly in India and in pockets of other growth economies, then Templeton India Equity Income is a good bet.

With about 30-35 per cent exposure to international stocks, this fund delivered 11.5 per cent annually in the last three years, comfortably beating its benchmark BSE 200's return of 5.1 per cent. The fund also finds a place in the top quartile of three and five-year performance chart of diversified equity funds. This performance is notable, as most funds with international exposure have struggled to beat domestic diversified funds over the long term.

Suitability
The fund is suitable for investors who want to take limited exposure to international markets without losing capital gains tax benefits. Templeton India Equity Income will hold only upto a third of its assets in international stocks. Hence, with at least 65 per cent holding in Indian equities, it will qualify for capital gains tax benefits available to equity funds.

As the fund holds a number of dividend yield stocks as part of its value approach, it also regularly distributes dividends. Since, its inception the fund has, without fail, paid out dividends once or twice a year. You can capitalise on this by either opting for dividend payout (if you need some income) or go for dividend reinvestment.

It is noteworthy that funds with international exposure are impacted by currency movements. For instance, the rupee's depreciation against the dollar, last year, improved gains made by international funds. While Templeton India Equity Income's exposure to international stocks is limited, still an element of volatility from currency does exist. Hence, you will do well to sweep profits occasionally through the dividend payout/reinvestment options.

For the same reason, let this fund not be your core holding. Use it as a diversifier and limit exposure to the fund.

Performance
While Templeton India Equity Income is not strictly comparable with domestic equity funds, we compared it with local dividend yield funds to see how it fared. Over a three- period, the fund lagged Birla Sun Life Dividend Yield Plus by less than a percentage point and marginally outperformed UTI Dividend Yield. The fund's return since inception in 2006, at about 13 per cent, is next only to UTI Dividend Yield. It has either kept pace with, or outperformed other dividend yield funds since its inception.

At 16 per cent, the fund's one-year return has beat top peers by 10 percentage points, given the sound rally in other foreign markets.

Portfolio
Templeton India Equity Income boasts of an offbeat portfolio with stocks from semiconductor industries to transportation – sectors that do not find much place in the Indian listed universe. Semiconductor stocks such as United Microelectronics Corporation (Taiwan) as well as shipping plays such as Cosco Pacific are part of the fund's portfolio. True to its value style, the fund has typical high dividend yield sectors such as finance, oil and chemicals. Even in the dividend yielding FMCG space, it holds less expensive stocks from countries like Taiwan and Chile.

As a value fund, Templeton India Equity Income would have to scout outside India for value. India has on most occasions traded at a premium to many Asian, emerging nations. At one-year forward price earnings ratio of 14.9 times, India is a premium to Chinese/Korean markets (10-11 times)

The fund is managed by renowned fund manager Dr. J Mark Mobius and assisted by Chetan Sehgal and Vikas Chiranewal.

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6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

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For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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Leave your comment with mail ID and we will answer them

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

Leave a missed Call on 94 8300 8300

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Birla Sun Life Frontline Equity

Posted: 04 Oct 2015 06:32 AM PDT

Birla Sun Life Frontline Equity - Invest Online

Birla Sun Life Frontline Equity is among the handful of equity funds with over a decade's track record. While quite a few funds with such a record have fallen by the way side, this fund managed to chug along well, keeping itself in the top quartile of the performance chart.

This large-cap focused fund delivered 15% annually in the last 5 years, convincingly beating its benchmark S&P BSE 200 by a good 6 percentage points.

Suitability

Birla Sun Life Frontline Equity is suitable for an investor's core portfolio. That said, if your priority is to minimize volatility in your portfolio, then another more established player – Franklin India Bluechip, must be your first choice.

The standard deviation, or a fund's deviation from its mean returns, is higher for Birla Sun Life Frontline Equitythan for Franklin India Bluechip, suggesting that it is relatively more volatile. But this feature also makes the Birla fund an ideal candidate for investing through SIPs as it averages rupee costs well when its NAV falls and gains. Its 5-year SIP return is superior to that of Franklin India Bluechip for this reason.

Performance

Birla Sun Life Frontline Equity beat its benchmark 88% of the times on a rolling one-year return basis since its inception in late 2002. While that is a good show, it ramped up performance in the last 3 years, when it did not once underperform its benchmark, even as returns were similarly rolled. Clearly, the fund has, in recent years, been trying to demonstrate better consistency in performance.

In terms of its risk profile, the fund is somewhat closer to HDFC Top 200, although the latter may have marginally higher exposure to mid-caps than the former. Both the funds also share a common benchmark.

Given that its benchmark BSE 200 is a tough index to beat (considering that Birla Sun Life Frontline Equityinvests predominantly in large-cap stocks), especially in a rallying market, the fund has mostly beaten its benchmark in years of up market only by 2-3 percentage points.

But it improved on this score in 2012, beating the benchmark by a convincing 5 percentage points. Overall, it adequately made up for this marginal outperformance by containing declines well in market falls such as the ones in 2008 and 2011. It fell 5-7 percentage points lower than the benchmark in those years.

Portfolio

portfolio Birla Sun Life Frontline Equity contained declines well, but mostly by holding a higher position in cash and debt. For instance, in the market low of March 2009, which was when the turnaround started, the fund held as low as 73% in equities, in contrast to the over 90% held by Franklin India Bluechip. Similarly, in end-2011, when markets received a beating that year, the fund held about 91% in equities, even as bold ones likes HDFC Top 200, went all out with an almost full equity exposure.

But thus far, the fund has not paid much of a price for this approach as the returns tend to normalize over a longer term.

Birla Sun Life Frontline Equity reduced exposure to consumer-oriented sectors such as automobile and auto ancillaries between December 2012 and June 2013. This may have helped to some extent as these sectors took a beating in the market fall year to date.

It is also among the few funds that managed to stay away from negative turf on a year-to-date basis.

The fund marginally reduced exposure to banking and finance space in the wake of rate uncertainties and upped exposure to FMCG and pharma. Holdings in IT remained about the same.

The fund also appeared to fancy the energy space and held stocks such as Alstom, Power Grid Corporation of India, Cairn India and Oil India. While exposure to infrastructure and capital goods stocks was not high, it held quite a few stocks (with less than 0.5% holding) such as Adani Ports, IL&FS Transportation Networks and Jindal Steel & Power from these spaces.

The fund is managed by Mahesh Patil.