Investors looking for limited exposure to equities can consider buying units of FT India Life Stage Fund of Fund – The 40s Plan (The 40s Plan). With a 65 per cent exposure to debt and rest in equities, the fund will enable limited participation in equities, with adequate downside protection.

The fund's 11 per cent compounded return since its launch in end-2003 is superior to the performance of pure debt funds over a similar period. Over a three and five-year period, when equity markets were subject to acute volatility, the fund beat the Sensex by 5-7 percentage points.

The 40s Plan is a debt-oriented fund-of-fund. It invests in a basket of debt and equity funds from the Franklin Templeton India stable. The fund rebalances its portfolio every six months to bring back the allocation to proportions originally mandated.

Suitability

The scheme is not just for investors in their 40s. You can consider exposure to the fund if you fall in any of the following categories: One , your risk appetite is low but you would still like to get some kicker returns from equities; Two , you have a portfolio tilted towards equity and wish to balance it with some debt; Three , you are a conservative investor who wishes to invest in a basket of funds instead of one.

The fund, however, is not suitable for you if you can take equity risks head-on and believe this is a ripe time to do so. You will be better off investing in pure diversified equity funds in that case.

Portfolio

Investing in this basket means restricting yourself to the Franklin Templeton stable. That said, the choice of the funds from the house provides some confidence. Take the equity basket: Franklin India Bluechip has quality large-caps and is an all-season fund. With a track record of nearly 20 years, this fund has generated compounded annual returns of 23 per cent since its launch .

Franklin Prima, on the other hand, provides higher exposure to mid-cap stocks and provides that extra bit of returns that mid-cap stocks tend to generate in a rally. While this fund was lacking in performance a few years ago, there are clear signs of an improved show now.

Templeton India Growth has a value strategy and may be a good fund to hold at a time when a number of stocks are available at low valuations now. Similarly, the scheme's debt portfolio is a combination of instruments with varying maturity. While Templeton India Income has a portfolio with average maturity of little over a year, Templeton India Income Builder has more long-dated instruments with average maturity at 2.9 years. The fund has higher proportion to Templeton India Income fund as the current interest rate and liquidity scenario appear to favour short-term funds.

Performance

The 40s Plan is comparable to monthly income schemes that also have exposure to equities. But given its higher exposure to equities compared with the average 20 per cent held by MIPs, the 40s Plan has historically generated superior returns during rallies.

For instance, when top MIPs such as HDFC MIP Long Term generated 30 per cent in the 2009 rally, the 40s Plan managed a much higher 42 per cent. In fact, in 2009, it also beat Birla Sun Life Asset Allocation – Moderate, another fund-of-fund that invests up to 60 per cent in equities.

That said, the 40s Plan may not contain declines as well as MIPs, given the former's higher equity exposure. In 2008, the fund's NAV dropped 19 per cent, higher than the 8-9 per cent fall in top MIPs.

Still, the fall was much lower than the 24 per cent decline seen in other debt-oriented funds with marginally higher equities than MIPs.

The 40s Plan has been a consistent performer, beating the I-Sec Mi-BEX six out of ten times in the last five years. That it also managed to beat the Sensex 50 per cent of the times in this period inspires confidence.

On a point-to-point basis, the fund has delivered 9 per cent annually in the last five years. The Sensex has returned just 2.6 per cent annually.

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