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Templeton India Income Builder Account

Templeton India Income Builder Account (IBA) is a long-term income fund. Its current asset size of Rs. 469.85 crore assets under management (AUM) is higher than the category median of Rs. 376 crore. The fund was launched in June 1997 and is benchmarked against the Crisil Composite Bond Fund Index.

Peer Group. We have used a set of income funds (excluding dynamic bond funds and credit opportunity funds) with an average modified duration of more than 24 months in the last three years.

Objective.The scheme seeks to provide reasonable return, regular income, liquidity and safety through investment primarily in quality fixed-income instruments.

Returns.

			6-Months		1-Year		3-Years		5-Years		Since Inception
Templeton India IBA		6.17		11.98		8.84		7.71		9.12
Crisil Composite Bond Fund Index		4.79		9.36		7.06		6.73		6.26
Category Average		5.46		10.48		7.62		7.93

All figures in % as on December 31, 2012; Returns above 1-year in CAGR terms

The fund has outperformed its benchmark as well as category average over the six-month, one-year and three-year horizons. Its return since inception is also higher than that of its benchmark. Over the five-year horizon, the fund has beaten its benchmark but has underperformed vis-à-vis its category average.

			2007		2008		2009		2010		2011
Templeton India IBA		7.28		6.17		5.42		4.68		9.86
Crisil Composite Bond Fund Index		6.90		8.81		3.50		4.88		6.90
Category Average		7.62		17.10		0.26		4.48		7.97

All figures in %

In terms of calendar year returns the fund has done better than the category average in 2009, 2010 and 2011. It underperformed compared to the category average in 2007 and 2008 with the underperformance being substantial in 2008. In comparison to its benchmark it outperformed in 2007, 2009 and 2011 while it underperformed in 2008 and 2010.

Interest-Rate Risk. The current modified duration of the fund is 70 months or 5.8 years. The category median is 74 months or 6.2 years. Thus, the fund is less aggressive on duration compared to its category.

Credit Risk.The fund has a portfolio that has a higher credit risk compared to the category average. (Refer to the appendix below to see the top holdings of the fund)

			Fund		Category Average
Cash & Equivalent		4.36		4.59
SOV		19.83		56.11
AAA		0.07		19.95
AAA(IND)		0.00		0.06
AAA(SO)		7.18		0.44
AA+		5.39		4.95
AA+(SO)		1.42		0.16
AA		13.10		2.73
BWR AA		0.00		0.09
AA-		32.58		2.37
A+		3.28		0.22
A1+		0.00		2.64
BWR A+(SO)		6.38		0.30
A(SO)		6.41		0.31

YTM. The fund's yield to maturity (YTM) currently stands at 10.19 per cent. This is the highest in its category. The category median is 9.02 per cent. This could be on account of the fund holding lower-rated papers.

Portfolio. In 2012, the fund maintained a portfolio that was heavily dominated by corporate debt. If we analyse the fund’s holdings in the last five years, it has always maintained a corporate debt exposure higher than the category average. The fund has also maintained a lower allocation to government securities than the category average.
In 2012, however, the fund reduced its corporate debt allocation from 87 per cent in January to 69 per cent in December 2012. Allocation to government securities allocation was increased from zero in January to 20 per cent in December 2012. The fund manager may have done so since interest rates are expected to soften in 2013.

2012 Portfolio: Average Holdings

	Asset Type		Fund (%)		Category Average (%)
Cash & Cash Equivalents		11.16		10.61
Certificate of Deposit		1.3		10.54
Commercial Paper		0		3.86
Corporate Debt		81.13		41.26
Deposits		0		0.29
Government Securities		1.65		27.97
PTC & Securitized Debt		4.52		0.42
PSU & PFI Bonds		0.24		3.93

Expense Ratio. The fund has an expense ratio of 1.73 per cent which is higher than the category median of 1.25 per cent. A high expense ratio is a negative for investors in a debt fund where returns are already much lower compared to equity funds.

Exit Load. The fund has an exit load of 0.50 per cent on or before six months. This is less restrictive than is the case withmost funds in this category which have an exit load applicable up to one year.

Fund Manager. The fund is managed by Sachin Padwal-Desai since July 2004. He has a sound track record in managing debt funds. He was declared the Business Standard Fund Manager of the Year in December 2012. Other funds managed by him include Templeton India Ultra Short Bond, Templeton India TMA, Templeton India Short Term Income Plan, Templeton India Low Duration, Templeton India Income Opportunities, Templeton India Income, Templeton India G-Sec, Templeton India Children’s Asset Plan and Templeton FRF Income Fund. Umesh Sharma has been the co-fund manager since July 2010. He also manages Templeton India Corporate Bond Opportunities.

Conclusion.The fund combines a strategy of playing on the duration curve as well as the credit curve. Given its track record and the likelihood of interest rates declining in 2013, this fund can be considered by investors who have the appetite for credit and interest rate risks.

Appendix

The top holdings of the fund are as follows:

	Instrument		Holding (%)
08.07% GOI - 03-Jul-2017		8.74
08.97% GOI - 05-Dec-2030		6.81
HPCL-Mittal Energy Ltd. 4% (3-Sep-22)		6.45
Trif Amritsar Project Private Ltd. 12.4% (15-Oct-22)		6.41
Opelina Finance & Investments Ltd.		6.38
HPCL-Mittal Pipelines Ltd. 4% (21-Aug-22)		5.79
Tata Motors Ltd. 9.84% (10-Mar-17)		5.39
Call Money		4.36
08.20% GOI - 24-Sep-2025		4.27
HPCL-Mittal Pipelines Ltd. 4% (21-Aug-21)		3.78
Andhra Pradesh Expressway Ltd. (15-Oct-22)		3.56
The Indian Hotels Company Ltd. 2% (23-Apr-17)		3.36
Indostar Capital Finance Private Ltd. (23-May-16)		3.29
Infiniti Retail Ltd. (29-Mar-15)		3.28
Fullerton India Credit Company Ltd. 12.15% (10-Jun-15)		3.21

 

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