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Aarati Krishnan

INVESTORS in the Templeton India Pension Plan can hold on to their present investments in the fund, in light of the fund's good five-year track record. The fund continues to be a reasonable long-term investment option for investors.

A conservative balanced fund such as the Pension Plan may also provide better protection against any downside in equities, under current market conditions, than pure-equity or aggressive balanced funds. The NAV of the Growth option stands at Rs 24.93 per unit.

The recent surge in equity values, coupled with more active management of its debt portfolio, have sharply improved the returns from Templeton India Pension Plan. The one-year returns now stand at 34 per cent and three-year returns at 14 per cent, on an annualised basis.

This is a reasonable level of return. But an investor in this fund would still have made a lower return in the last one year, than one who invested in a combination of the Franklin India Bluechip Fund (a pure equity fund) and the Templeton India Income Builder Account (a pure debt fund), in the same 40:60 proportion.

This strategy would have yielded a return of 43 per cent over the past year.

Scoring through conservatism: But the lower returns in Templeton India Pension Plan need not be a cause for concern as the fund also assumed a lower level of risk than the above pure-equity and pure debt funds. The changes in the fund's portfolio over the past year reveals the following:

The fund appears to have periodically re-balanced its equity portion to restrict its equity portion to less than 40 per cent of the assets. For instance, despite the sharp run-up in equities between the March 2003 to September 2003 period, the fund's equity component actually fell from 37.8 per cent to 36.5 per cent.

Since periodic rebalancing ensures regular profit-booking, this would help reduce volatility for investors in the fund.

The fund's equity portion is likely to have benefited from its overweight position in pharma, and IT stocks, especially over the past couple of months. Pharmaceuticals was the largest sectoral allocation within the equity portion in June 2003.

This helped pep up returns from the fund during the June-September period, when pharma stocks registered a sharp appreciation in value

The equity portion is made up mainly of large-cap stocks. While this may have resulted in some missed opportunities, it also contributes to lower volatility.

The debt portion of the portfolio has been more actively managed over the past year, than it has been in the past. Earlier, the debt portion was packed with medium-term corporate paper, which is likely to have provided limited trading opportunities. But in the March to September 2003 period, the fund added a significant portion of long-dated gilts to the debt portfolio.

Allocation to gilts climbed from 3 to 20 per cent over this period. This has put the fund in a better position to capitalise on any trading gains from a decline interest rates.

However, the average maturity of the debt portfolio, at 1.4 years, continues to be low, keeping the interest rate risk associated with the debt portion under check.

The fund has also shifted assets from the liquid to the debt portion, which has helped perk up the return profile of the portfolio.

Fund facts: The Templeton India Pension Plan is a tax saving fund. Investments in the fund are eligible for Section 88 benefits , but are subject to a statutory three-year lock-in.

The fund charges an entry load of 1 per cent. Its expense ratio, at 2.25 per cent is on the high side and is in keeping with levels found in equity, rather than debt, products.

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