Franklin India Credit Risk Fund: Ahead of peers on the returns front

Launched in December 2011 as Franklin India Corporate Bond Opportunities Fund, the scheme was renamed Franklin India Credit Risk Fund in June 2018 and repositioned as a credit risk fund after the reclassification and rationalisation of mutual fund schemes by the Securities and Exchange Board of India (Sebi). The scheme featured in the top 30 percentile of the credit risk category in the CRISIL Mutual Fund Ranking (CMFR) for the three quarters ended December 2018.

Santosh Kamath (CIO-fixed income) is managing the fund for more than four years now; he has over 23 years of experience. Kunal Agrawal is co-managing the fund since October 2018. The fund’s investment objective is to provide regular income and capital appreciation through a focus on corporate securities.

Franklin India Credit Risk Fund
 

Consistent performance
 

The fund has consistently outperformed its benchmark (CRISL Short Term Bond Fund Index) and peers (funds ranked under the credit risk funds category in CMFR in December 2018) over the trailing periods under analysis. It significantly outperformed its benchmark and peers during the one-year, the two-year and the three-year trailing periods.

A sum of Rs 10,000 invested in the fund on December 07, 2011, (inception of the fund) would have grown to Rs 19,465 (9.6 per cent CAGR) on March 12, 2019, as compared with Rs 18,064 (8.48 per cent CAGR) for the peer group and Rs 18,036 (8.46 per cent CAGR) for the benchmark. 

A systematic investment plan (SIP) is a disciplined mode of regular investments offered by mutual funds to investors. A monthly SIP of Rs 10,000 in the fund over seven years (an investment of Rs 8.4 lakh) would have grown to Rs 11.5 lakh, earning 8.98 per cent per annum as of March 12, 2019. A similar investment in the benchmark would have grown to Rs 11.13 lakh at 8.04 per cent per annum. 

Duration management

The fund maintained modified duration in a narrow range of 1.47 years to 2.34 years during the past three years, averaging 1.81 years. The fund focuses on credit calls to generate returns and maintains low modified duration to reduce exposure to interest rate risk. 

Portfolio analysis

During the past three years, the fund maintained a predominant allocation to NCDs and bonds, averaging 96.57 per cent. Exposure to money market securities (CDs and CPs) averaged 2.44 per cent.

The fund has the mandate to invest 80 per cent or more of the portfolio in AA and below rated corporate bonds. Its allocation to sub-AA+-rated securities averaged 91.25 per cent during the past three years. Exposure to A+ and below rated securities averaged 67 per cent; the AA category securities exposure averaged 26.62 per cent during the same period. The fund did not take exposure to sovereign securities during the period under analysis. It maintained an average 6 per cent allocation to the highest-rated corporate bonds (AA+ and above /A1+) during the past three years. 

CRISIL Research