Articles

WHAT IT IS:

This open-ended income fund seeks to mainly invest in corporate bonds. As per its asset allocation pattern, around 65-100 per cent of your money will be invested in debt and money market securities issued by private sector companies and public sector undertakings (banks, financial institutions and NBFCs). The balance may be invested in instruments like treasury bills and collateralised borrowing and lending obligation (CBLO) to name a few.

Historically, corporate securities have had higher spreads over government securities (G-secs) because corporate bonds are perceived to carry higher risk compared with G-secs. The new fund offer (NFO) has two plans — growth and dividend (with payout and reinvestment options). The NFO closes for subscription on November 29. Minimum investment amount is Rs 5,000.

WHY CORPORATE BONDS:

The fund house would like you to believe that the NFO is an attractive investment opportunity for investors who are willing to invest their money for more than 30 months. So, it will take active calls on investment opportunities and aims to cap the average maturity for the portfolio at 36 months. The fund promises that it will have no exposure to dated government securities.

DIFFERENCE WITH FMPs:

Fixed maturity plans (FMPs) are close-ended funds, which means they have a pre-specified tenure. This implies that if attractive investment opportunities come up during this period, FMPs may not enjoy them. This is where open-ended funds like this Templeton product may enjoy freedom but the risk of wrong choices could prove to be costly.

FC VERDICT:

Clearly, the fund is hoping to make money from opportunities in the one-three year corporate bonds segment. If the fund sticks to high-quality corporate bonds, it could work well. However, what we do not like about this fund is the lack of a defined allocation plan just for corporate bonds. By saying that it will invest 65-100 per cent in debt and money market securities issued by private and public sector entities, including banks, it has the leeway of finally not investing much in corporate bonds.

If corporate bonds form a minor share of fund assets later, the name Templeton India Corporate Bond Opportunities Fund could be misleading for investors. Templeton has about 26 per cent share in the income fund segment and should have expertise in debt market management.