Franklin Low Duration Fund: Focus on high-yielding securities pays off

The fund has been constantly ranked in the top 30 percentile in the four quarters ended September 2017

Launched in July 2010, Franklin India Low Duration Fund features in the credit opportunities fund category of CRISIL Mutual Fund Ranking. The fund has been constantly ranked in the top 30 percentile (CRISIL Fund Rank 1 or 2) in the four quarters ended September 2017. Its month-end assets under management (AUM) increased from Rs 30.08 billion to Rs 55.86 billion in three years.

Santosh Kamath, CIO-Fixed Income, has experience of over 22 years and has been managing the fund since April 2014 along with Kunal Agrawal, who has an experience of 14 years. 

Superior performance

The fund has consistently outperformed its benchmark (CRISIL Short Term Bond Fund Index) and peers (schemes defined under the credit opportunities category of CRISIL Mutual Fund Ranking September 2017) over short as well as long time periods. It garnered significant alpha across all trailing periods considered, and the returns have only bettered over the long term.

A sum of Rs 1,000 invested in the fund since inception would have grown to Rs 1,962 (9.43 per cent CAGR) on January 15, 2018 compared with Rs 1,908 (9.02 per cent) for the peer group and Rs 1,817 (8.31 per cent) for the benchmark. CAGR is compounded annual growth rate.

A systematic investment plan (SIP) is a disciplined route of financial investing through which investors can invest fixed amounts in a mutual fund at regular intervals. A monthly SIP of Rs 1,000 over seven years (an investment of Rs 84,000) would have grown to around Rs 116,981, returning 9.41 per cent p.a. A similar investment in the benchmark would have grown to around Rs 113,021 at 8.44 per cent.

Duration management

The fund's modified duration has been on the lower side compared with peers and has varied from 0.80 to 1.56 years in the past three years. The peer group’s modified duration averaged 2.14 years over the same period.

Portfolio analysis In the past three years, the fund has maintained average 74 per cent exposure to high-yielding securities which has largely been in line with peers. 

The average corporate debt exposure (97.12 per cent) over this period was slightly higher than that of peers (92.94 per cent), which gave it an edge in terms of returns. 

Interestingly, the fund manager has completely cut down exposure to G-secs in the past 16 months. Investments in high-yielding securities and corporate debt coupled with low modified duration have helped the fund generate higher returns than peers, especially when the debt market has been marked with noticeable uncertainty in interest rates.