Templeton India Pension Plan: Invest

The Templeton India Pension Plan (TIPP) is a good option for conservative investors who are either looking for regular income after retirement or are looking for a low-risk fund to save for retirement.

Seen in isolation, TIPP’s performance doesn’t look all that appealing at this juncture. Its one-year return at 10.6 per cent isn’t as good as that for balanced funds (12.3 per cent). Three- and five-year returns at about 8 and 5 per cent annualised are better than balanced funds but fail to match up to short-term debt funds.

While TIPP’s returns in this period have certainly not compensated investors for the higher risk in the equity portion of the fund, this should change over the long term. This is a retirement fund, meant for 10 to 15-year investments, with a lock-in period to deter short-term churn in the portfolio.

Features, suitability

With a 40 per cent limit on its equity investments and a 60 per cent allocation to debt, TIPP fits somewhere between a monthly income plan and a balanced fund, in terms of risk profile. Monthly income plans allocate 15-20 per cent to equities while balanced funds take on a 65-70 per cent equity exposure. This makes the fund suitable for conservative investors, who want to cap downside risk from equity market swings. In its worst year, (2008) for instance, TIPP saw its NAV fall by 26 per cent, while the average balanced fund lost 42 per cent in value.

The fund can fulfil your tax saving requirements, as it offers tax benefits under section 80C of the Income Tax Act, with investments carrying a three-year lock-in period. It also discourages exit before you attain 58 years of age by imposing a 3 per cent exit load.

But in an emergency, this fund would still offer better liquidity than all other retirement savings options - public provident fund, national savings certificates or pension plans from insurers.

TIPP is quite an actively managed fund, both with respect to its equity and debt portfolios. In terms of asset allocation, equities have consistently made up 36-38 per cent of the assets, with the rest parked in a mix of corporate and money market debt.

In the equity portfolio, large-cap stocks dominate. Financials have consistently been a top sector exposure.

Within the debt portfolio, the fund has shifted out of gilts into corporate debentures in the past one year. With the prospect of price gains on gilts fading, TIPP seems to have sought to bump up the yield on its portfolio through corporate bonds.

Almost 60 per cent of the portfolio was invested in corporate debt as of October 2012. The fund hasn’t stuck only with AAA rated instruments either, with substantial holdings in AA and even AA minus instruments.

The low churn in this fund’s portfolio and its long term nature could help it hold such bonds to maturity and sidestep the price and liquidity risks in lower-rated instruments.

Funds with a sizeable equity exposure are usually not regular dividend payers. But TIPP, with its moderate equity portion, has proved quite consistent in its dividend payouts. In the last decade, the fund hasn’t ever skipped an annual dividend payout even in the choppy year of 2008. Its payouts have ranged between Re 1/unit and Rs 2.5 /unit depending on equity market conditions.

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