FT India Life Stage FoF – The 40s Plan: Invest

Investors looking for debt-oriented mutual fund options can consider buying units of Templeton Life Stage Fund of Funds – The 40s Plan. With a fixed proportion of 35:65 in equity and debt, the fund has helped contain declines without entirely cutting back on equity exposure.

Returns of 12 per cent compounded annually over the last three years compared with the 8.6 per cent annual return of funds in the same category as well as that of diversified equity funds demonstrate its ability to do well in volatile times. The performance, of course, is largely attributable to superior returns from debt as an asset class over the last 18 months.

This FoF's exposure to two steady income fund performers from the Franklin stable — Templeton India Income and Templeton India Income Builder — have helped prop returns; even as the equity funds in the portfolio have driven returns during equity rallies.

Suitability : The 40s Plan is not necessarily for investors in their 40s. The fund is a good diversifier for an equity-heavy portfolio. However, for those weighing their options between investing in MIPs and this fund, it is noteworthy that The 40s Plan fund carries marginally higher risks. While MIPs restrict equity to about 20 per cent, this FoF has 35 per cent fixed equity exposure through three Franklin funds — Franklin India Bluechip, Franklin Prima and Templeton India Growth.

Any excess equity exposure is rebalanced every six months. The higher equity holding has helped deliver superior returns to MIPs during market rallies. In 2009, for instance, the fund's NAV gained 42 per cent as against 30 per cent by some of the best MIPs and a 15 per cent category average. This said, the fixed equity component also meant that the fund lost higher than MIPs in the 2008 downturn.

Conservative investors can make the best of this fund (given its superior returns over peers in rallies) by opting for dividend payout option. Templeton as a fund house declares dividends over reasonably regular intervals, especially when markets appear overheated.

Portfolio and performance : The 40s Plan has delivered 11.4 per cent returns since its launch in end-2003 as against benchmark (Sensex, CNX 500 and Crisil Composite Bond index) return of 10 per cent. While the fund's three-year returns are similar to another FoF Franklin India Dynamic PE, returns since launch lagged the latter as equity exposure is capped in The 40s Plan.

All the equity funds in which this FoF invests have a good track record, except for the mediocre performer Franklin India Prima (10 per cent exposure). Both the income funds in the portfolio hold instruments with an average yield to maturity of 9.8 per cent.

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