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Investors looking for a relatively safe debt investment avenue can consider buying the units of Franklin India Ultra Short Bond Fund - Super Institutional Plan (Franklin Ultra). It is a bond fund that has a very low average maturity profile, and invests only in short-term debt instruments that are highly rated. Money market instruments and commercial papers dominate the portfolio.
Over the past 10 years, Franklin Ultra has been among the top couple of schemes in its category. Its five-year returns of 9.2 per cent are among the best compared with those of its peers. Across time-frames, the fund has outperformed its benchmark — CRISIL Liquid Fund Index. Over longer tenures of three or more years, the fund has delivered 1.3-1.5 percentage points more than its benchmark. Even on a daily rolling returns basis over the past five years, the scheme has outperformed its benchmark most of the time.
Franklin Ultra might be suitable for two sets of investors. Those wishing to build a contingency or emergency fund as part of their financial planning process can park sums in the fund, given its track record of delivering steady returns.
Even for longer-term investments, Franklin Ultra would be a good option, given that its returns over the years have been much higher than what most dynamic-bond or credit-risk funds have managed.
As SIPs are normally not that gainful in debt funds, investors can park lump sums at periodic intervals when they have sufficient surplus.
Portfolio and strategy
In keeping with its mandate, the fund invests only in securities that are set to mature within a year.
Over the past couple of years, the scheme has been steadily decreasing its modified duration (0.44 years currently), even as interest rates started their journey northwards.
It has maintained portfolio yield at 8.5-8.7 per cent levels over the years.
Nearly half of Franklin Ultra’s holdings are in instruments that have the highest rating for short-term instruments (A1+).
Certificates of deposits of Axis Bank and IDFC Bank; commercial papers of institutions and firms such as HDFC, NABARD and Reliance Industries; and corporate debt instruments of companies such as IRFC and ReNew Power are some avenues the scheme invests in.
Even while investing in securities slightly down the rating curve, Franklin Ultra sticks to companies that have a solid conglomerate backing. Piramal Realty, Tata Motors and Reliance Broadcast Network are some examples.
Additionally, the scheme invests across 75-80 different securities of various entities, thus giving the portfolio a well-diversified and low-risk touch.
Though Ultra Short Duration funds are suggested for shorter holding horizons, there is no reason not to hold them for longer-term goals as well when the returns are better than other debt-fund categories.
The minimum lump-sum investment allowed in the scheme is ₹10,000.
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