FT India Life Stage Fund of Funds 30s Plan: Invest

With interest rates still poised high and stock prices ruling low, investors looking for options today may benefit from investing in hybrid funds that have both debt and equity holdings. The Franklin Templeton India Life Stage 30s Plan (FT 30s Plan) fits the bill quite well.

The fund invests about 55 per cent of its portfolio in equity funds from the FT stable and 45 per cent in income funds.

A muted performance from both the debt and equity portions has restricted the fund's returns to just 5 per cent in the last one year.

But the portfolio holds promise for long-term investors. While the income funds in the portfolio may benefit from exposure to corporate bonds and falling interest rates, the equity portfolio may do well on account of the high exposure to blue chips and value stocks.

Low risk option

Though it is targeted at investors in their 30s, FT 30s Plan is an ideal fund for any conservative investor looking to save towards a long-term goal. One, the fund has a 65 per cent cap on equities, with this allocated to Franklin Bluechip Fund and Templeton India Growth Fund.

These funds are focussed on large caps and value stocks, respectively, making this a lower-risk option compared with the usual balanced funds.

That could explain the fund's 5 per cent return in the last one year, even as balanced funds as a category managed barely any gains.

Two, the automatic rebalancing feature helps reset the equity:debt ratio for investors without any active intervention, thus reducing risks if the equity markets rally.

Performance

Despite a muted one-year return, the FT 30s Plan sports healthy three- and five-year returns of 21 per cent and 9 per cent, respectively, on an annualised basis.

Returns in the recent past seem to have received a boost mainly from Franklin India Bluechip Fund and Templeton India Growth fund (30 per cent return each in three years).

The Templeton India Income Fund and Income Builder Account have delivered returns of 5.6 and 7.5 per cent, respectively, in these three years. But returns from both funds could see an improvement from here on. While the Income Fund is invested in short-term corporate securities to benefit from high yields, the Income Builder Account with its longer-dated portfolio can make gains from any softening of interest rates in the months ahead.

Both fund portfolios today feature a yield to maturity of over 10 per cent, indicating potential for better returns.

One can also expect FT to dynamically vary its exposures between these different funds to improve the fund's return potential. In the last one year, the fund has leaned more towards debt.

The latest September portfolio shows a 28 per cent allocation to Bluechip Fund with 6-7 per cent invested in Templeton Growth and Prima funds. The debt portion accounted for nearly 60 per cent of the portfolio.

Investors usually shy away from fund-of-funds such as this one because these schemes do not enjoy the favourable tax treatment (in terms of capital gain tax) that equity or plain balanced funds enjoy.

However features such as indexation of capital gains, automatic rebalancing and a diversified portfolio make the tax aspect less important for deciding on the investment.