FT India Life Stage Fund of Funds – 40s Plan: INVEST

The FT India Life Stage Fund of Funds – 40s Plan is a good choice for investors with a low risk appetite. It maintains a 65 per cent allocation to debt, with the balance invested in equities. Yet, it has managed a compounded annual return of about 9.5 per cent over a five-year period.

The fund rebalances its portfolio every six months to maintain the 65:35 allocation. However, the 40s Plan is a fund of funds which means that this scheme will invest in other offerings from the Franklin Templeton India stable. It is currently invested in Templeton India Income and Templeton India Income Builder on the debt side, and Franklin Bluechip, Franklin Prima and Templeton India Growth fund on the equity side.

Suitability

The 40s Plan is not strictly targeted at investors in their 40s. It will suit anyone who has a limited appetite for risk, but at the same time want to boost their returns from exposure to equities. It is also a good diversifier for those who have a portfolio tilted towards equities and want to balance it with some debt. Investors must, however, note that for the purpose of taxation of capital gains on sale of units, the treatment for fund of funds is similar to debt funds.

Performance

Over one-, three- and five-year time periods, the 40s Plan is among the toppers in its category which comprises a mix of debt-oriented balanced funds, debt-oriented fund of funds and monthly income plans. It has outperformed the category average during both market rallies and falls.

While its returns are comparable with those of MIPs, given its slightly higher allocation to equities than MIPs, it may carry relatively higher risk.

The higher equity exposure, though, has helped the Plan generate superior returns during rallies. For instance, in the 2012 rally, the 40s Plan clocked a return of 17.2 per cent, about 2 percentage points higher than top MIPs such as HDFC MIP – Long-term. Predictably, the fund has not been able to contain losses as much as MIPs during downturns.

Portfolio

The fund’s current investment choices make for a well-diversified portfolio.

The allocation to the two debt funds constitutes about 64.3 per cent. Templeton India Income Fund’s portfolio is tilted more towards AAA, AA and AA- rated corporate debt . Gilts constitute about 48 per cent of the Income Builder Fund’s portfolio.

The expected decline in interest rates currently could help reduce the credit risk on lower rated debt as well as trigger a rise in bond prices. Maturity profile is managed actively to play bond price rallies.

On the equity side it has a good mix of stocks across various market capitalisations and investing styles through the three funds. All three are reasonably good performers.

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