Are you worried about the current market volatility but still wish to invest in equity funds that can mitigate downside risks?
Equity-oriented balanced fund Franklin Templeton Life Stage Fund of Funds-20s plan is a good option.
Although the fund invests 20-30 per cent of the assets in debt instruments, it proved its mettle in keeping up with barometer equity indices such as Sensex and CNX Nifty across market cycles.
Over a five-year period the fund has clocked compounded annualised return of 13.5 per cent, marginally outpacing both indices by a percentage point.
However, the fund trailed its peers such as HDFC Prudence and Reliance Regular Saving Fund by four and two percentage points respectively. The fund is therefore best used as a diversifier.
Unlike the other balanced funds Franklin Life Stage does not invest directly in stocks.
It typically routes 80 per cent of the assets to equity schemes from the same fund house.
Of the total assets the fund invests 50 per cent in Franklin India Bluechip and the remaining 30 per cent is divided equally between value fund Templeton India Growth Fund and mid-cap biased Franklin Prima Fund.
The debt component of 20 per cent is split between Templeton India Income Builder and Templeton India Income.
Suitability : The fund's predominant exposure to large-caps helps weather market corrections and generates market-beating returns during rallies.
Its exposure to debt also offers a hedge against equity falls. The only concern is the exposure to its underperforming mid-cap fund.
However, its current portfolio of stocks from the financial space and beaten down stocks in the engineering space offer scope for improvement in performance.
In terms of suitability the fund would fit the bill of investors looking at stable rather than spectacular returns.
Its ability to contain declines to 40 per cent in the market free-fall in 2008, as against the Sensex decline of 52 per cent, provides comfort for conservative investors.
Performance : The fund, over a three-year period, achieved a compounded annualised return of eight per cent; it outpaced BSE Sensex by seven percentage points and Crisil Balanced Fund Index by three percentage points.
Although it generated only market returns over a year, the fund's exposure to debt may provide it with ample opportunities in the current rising interest rate scenario.
However, higher expenses compared with pure balanced funds as a result of its fund-of-fund structure marginally pulls down returns.