Franklin India Flexi Cap: Getting the balance right

We usually do not recommend schemes with a shorter track record. However, Franklin India Flexi Cap Fund, that was launched on 9 February 2005 and is just under two years old, makes a compelling case for investment. And this scheme, like RVF, is a dark horse.

Flexi style

The Indian equity markets have developed to a great extent in the past three to four years. It's not just the large-cap stocks that outperform the market at times; even medium and small companies on many occasions. In fact, the major part of the current market rally has been fuelled by mid-cap companies.

Therefore, it pays to be invested in a scheme that captures the upside of both these segments. Flexi or multi-cap funds aim to invest in scrips across market capitalisation. So, when large-cap stocks do well, these schemes tilt towards large-cap stocks, and when mid-cap scrips do well, they invest more in mid-cap stocks.

FIFCF is one such scheme. For example, in December 2005, when mid-caps were doing well, FIFCF had invested 24 per cent of its corpus in mid-cap stocks. Currently, the scheme has brought down its exposure to mid-caps to around 20 per cent, given that this segment is lagging behind. The scheme has consistently held around five per cent of cash to tide redemption requirements.

Good track record

Since FIFCF is a little less than two years old, we could not compute its rolling returns. Hence, in this case, we have looked at its compounded annual growth rates. As on 31 October, while the Sensex returned 64 per cent, FIFCF returned 64.4 per cent. We also checked the scheme's downside risk. FIFCF had one of the lowest downside risk figures of all schemes, and is thus well-placed on the risk-adjusted returns front.

Small wonder then that the scheme has grown by 66 per cent in just a-year-and-a-half, from Rs 1,949.70 crore (Rs 19.5 billion) in March 2005 to Rs 3,387.16 crore (Rs 33.87 billion) as of October 2006.

The bigger fund size is of little concern to a fund house that is used to managing four large schemes including Franklin India Bluechip Fund (Rs 2,546.01 crore) and Franklin India Prima Fund (Rs 1,790.39 crore).

S Rajah, chief investment officer (equity), Franklin Templeton, says: "Typically, in addition to quantitative parameters, we also have qualitative criteria for stock-picking - background of the promoter or group, industry demand, prudence in financial and accounting policies, compliance culture, minimum return on capital, and liquidity - to sift through investments for our portfolios."

Fund management

Franklin Templeton has a sound track record in equity schemes, with fund managers K N Sivasubramanian and S Rajah having been at the helm of affairs for the past 10 years. Ironically, although the fund house has been around for more than a decade, this is the first all-weather equity fund it has launched.

Why buy

•  Sivasubramanian and S. Rajah are two of the best fund managers in the industry
•  Invests across market cap stocks
• One of the lowest down-side risks in the past one year