Your Fund Portfolio

I plan to invest in Franklin Build India Fund, approximately ₹5,000 per month for a period of 10 years. I would like to know your opinion on this.

Rejinath Sagar

Franklin Build India Fund is an open-ended thematic fund focussed on the infrastructure theme. The fund has a mandate to put at least 80 per cent of its money in stocks of companies engaged either directly or indirectly in infrastructure-related activities. It has a good long-term track record — convincingly beating its benchmark, S&P BSE India Infrastructure TRI, and figuring in the top quartile among peers.

In general, investment in sectoral and thematic funds is not recommended. But this broad rule doesn’t hold for Franklin Build India Fund. You can invest in the fund.

First, an important reason why sectoral/thematic fund investments are generally not recommended is because of concentration risk. Such funds invest mostly in stocks belonging to a particular sector or theme.

This is unlike diversified funds that have exposure to stocks from multiple sectors in their portfolios. Sector or thematic funds generally do very well when the tide is in their favour.

But they get hurt quite badly when the cycle turns, as it invariably does. Examples of boom and bust from the past include tech funds at the turn of the century and pharma funds in the past few years.

These funds are suitable only for those who have an up-to-date knowledge and a good understanding of the sector or the theme, know when to enter, and, importantly, when to exit the fund and have an appetite for high risk.

Even in the case of such savvy investors, it can be argued that well-run diversified funds make for a better choice — they, too, would most likely have exposure to promising sectors, and, in addition, hold other high-potential stocks, too, thus helping spreading risk better.

Besides, why should investors who are very well-informed about a sector take the mutual fund route to place their bets? They might as well buy and sell the stocks themselves directly and save on expense ratios that funds charge. In short, sector and thematic funds are generally best avoided.

But not all thematic funds are the same. Some thematic funds invest in sectors across the theme, which in effect, makes them akin to diversified equity funds. Franklin Build India Fund, for instance, has a holding of 34 stocks across multiple sectors related to the broad infra theme. These include banks, finance, auto, cement, construction, industrial products, oil and gas, metals, industrial products, power, telecom and transportation. That is, the portfolio is diversified and there is no major concentration risk.

Like many other diversified funds, the major holding of Franklin Build India is in banks (about 30 per cent as of June 2019). While about 80 per cent of the corpus has to be in infra-related stocks, the fund also has the leeway to invest in non-infra stocks to the extent of 20 per cent of the corpus.

A diversified portfolio makes Franklin Build India Fund different from some other infrastructure sector/theme funds that invest predominantly in the core infra sectors.

You plan to take the SIP route to investing in the fund for a period of 10 years. That’s a good approach — regular, systematic investing over the long term. That said, keep reviewing the performance of the fund regularly, say, once every year.

Also, don’t restrict yourself to one fund. Have a portfolio of 4-5 well-run funds. Diversification makes sensenot just within funds but also across funds.

Send your queries to [email protected]

Published on August 11, 2019

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