Know your Mutual Fund: How Franklin India Credit Risk Fund has performed

The fund was launched in December 2011 as Franklin India Corporate Bond Opportunities Fund. Subsequent to the re-classification of mutual fund schemes by Sebi, it was renamed Franklin India Credit Risk Fund in June 2018. Santosh Kamath and Sumit Gupta have been managing the fund for more than four years. Kamath has over 23 years of experience and Gupta has over 14 years of experience. The fund was ranked Number 2 in the credit risk category of Crisil Mutual Fund Ranking of June 2018.

The investment objective of the fund is to provide regular income and capital appreciation through a focus on corporate securities.

Trailing returns

The fund has consistently outperformed the benchmark (Crisil Short Term Bond Fund Index) and the peer set (schemes ranked under the credit risk category of Crisil Mutual Fund Ranking-June 2018) in all the trailing periods under analysis. An investment of Rs 10,000 in the fund on December 07, 2011 (inception date of the fund) would have grown at an annualised 9.59% to Rs 18,418 on August 07, 2018 vis--vis peers’ Rs 17,669 (8.91 % CAGR) and the benchmark’s Rs 17,155 (8.43%).

Risk-reward matrix

The fund delivered higher average daily returns than both the category and benchmark in the last three years, but the same has come on the back of higher volatility.

Duration management

The fund’s modified duration averaged 1.8 years in comparison to 2.07 years of its peers in three years. The portfolio duration ranged from 1.47 years to 2.32 years during this period.

Portfolio analysis

The fund stands true to the objective of the category - generate returns for the investors by taking credit risk in the portfolio. Accordingly, the fund has maintained average allocation of 68% of the portfolio to A+/A2+ and below rated debt securities during the past three years. The allocation to this segment ranged from 57.5% to 77%. AA category & A1 rated securities had average allocation of 25%, while exposure to the highest rated debt securities averaged 3.71% during this period.

Allocation to AA category & A1 rated securities declined, from 34.66% in July 2015 to 12.97% in March 2017. Allocation to A+/A2+ & below rated securities increased, from 57.54% in July 2015 to 77.46% in March 2017. Thereafter, exposure to AA category & A1 rated securities was gradually increased to 29.33% by June 2018.

(Source: DNA Money)