Franklin India: Passivity may pay

S. Vaidya Nathan

RECOMMENDATION: The Franklin India Index Fund, a fund that would passively track the S&P CNX Nifty Index (Nifty) can be considered for investment by investors with a two to three year perspective. The Templeton India Mutual Fund does not have a good track record. But this factor notwithstanding, it is the passive nature of the Nifty Index Fund that may make it paying proposition from a long-term perspective.

Though the Franklin India Nifty Index Fund is a passive one, a key factor would be the tracking error. The tracking error is the extent of divergence between the performance of the index and the index fund and the lesser it is, the better it would be for investors. Though it is still early for making a call on this aspect on the Franklin India Index Fund, it is the decline in the market levels that makes investing in an index fund a fairly good option at this point in time.

The availability of index futures could also come in handy in improving the returns over a period of time. The Nifty is an index managed by India Index Services & Products Ltd, promoted by the National Stock Exchange, CRISIL and Standard & Poor's. The NAV of the fund is Rs. 9.84 per unit.

SUITABILITY: An investment in the Franklin India Index Fund can be considered by investors who have good exposures in the technology sector (mainly information technology stocks) either directly by way of stocks or indirectly through sectoral IT funds or funds with a heavy tilt towards the technology stocks. But for investors who do not have exposures in the technology sector, an investment in the index fund would not be a good option since the weightage to technology stocks in the index is rather low. That is when compared to the share enjoyed by the technology stocks in overall market capitalisation sweepstakes.

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PORTFOLIO: The Franklin India Index Fund would invest in the 50 stocks in the Nifty in the same proportion as each stock has in the index. The Nifty has a market capitalisation of around Rs. 3,50,000 crores now. Of the five broad sectors of stocks in the Nifty, from the present levels, the downside risk from a medium to long-term perspective appears to exist in the economically sensitive stocks' category. But this should be more than made up in the other sectors and over a two to three year period reasonable returns can be expected. The stocks with heavy weightage are Hindustan Lever, Infosys, Reliance, ITC and Zee Telefilms.

FUND FACTS: This open-end fund was launched in June. It offers entry with a sales load of one per cent. There is no exit load. But there is a lock-in period of 30 days. The fund intends to rebalance its portfolio on a daily basis.