Franklin India Income Builder Fund

 The scheme seeks to provide reasonable return, regular income, liquidity and safety through investment primarily in quality fixed income instruments. Ideal for a time horizon of 6 months to 3 years.

 

Most income funds in India stick to government securities or AAA corporate bonds and then use duration calls, based on their interest rate forecasts, to deliver higher returns. This is a tricky business as it requires the fund manager to correctly predict interest rate swings. The Franklin India Income Builder Account takes a different route. It uses a 'managed credit' strategy to earn higher yields on its portfolio. It invests in high-yielding corporate bonds, while not going overboard with duration calls.

The fund has been a top performer in the income category, with returns since launch of 9.3 per cent. Returns over one and three years have been double digit. The returns are well ahead of both the benchmark and the category. The fund's NAV did take quite a knock during the sudden rate hike of July 2013, but it was quick to bounce back.

The fund has, in recent times, maintained a moderate average maturity of four-five years and carried a yield to maturity of 10.29 per cent of April 2015. This suggests that the portfolio has high return potential. But with its expense ratio at 1.92 per cent, this is an expensive debt fund. Most fund managers are currently wary of credit risks. This fund actively takes on such risks by investing in lower-rated bonds. But the fund supplements the ratings of external agencies with its own assessment of companies. Its long track record of over ten years in taking such calls is a confidence booster.

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