The Hindu Business Line : FT India Life Stage Fund of Funds: Invest

THE FT India Life Stage Fund of Funds is a good investment option for investors who would like to own a portfolio of equity and debt funds, without actively managing their portfolio. The Life Stage Fund of Funds offers an entry point into six different equity and debt funds from Franklin Templeton that have a good five-year record.

This makes up, in part, for the restricted choice (this product invests only in Franklin Templeton funds) and the inflexible structure (you have to adhere to a pre-set choice of funds). The Life Stage funds have become more attractive in recent months, because long-term debt funds have begun to deliver better returns, after an erosion in NAV over 2003-04.

The Life Stage Fund offers five plans, targeted at different age-groups, that invest in varying combinations of equity and debt. The `20s Plan' offers the most aggressive equity exposure, with 80 per cent of its portfolio invested in Templeton's diversified equity funds and 20 per cent allocated to its long-term debt funds.

The 50s Plus Floating Rate Plan offers the most conservative option, with an 80 per cent allocation to Templeton's Floating Rate fund and a 20 per cent exposure to large-cap equity funds. While choosing between the plans, you need not go strictly by the targeted age-group and should pay greater attention to the debt-equity mix you are comfortable with for your portfolio.

Performance: Each of the five plans, from the 20s Plan to the 50s-Floating Rate Plan, have outpaced their respective benchmarks in the two years since launch. The benchmarks are made up of a similar proportion of the BSE Sensex, the S&P 500 and the CRISIL Bond Fund index.

The plans with a larger equity exposure have fared better, outpacing the benchmark by a larger margin. The annualised returns range from 8.7 per cent for the debt-oriented 50s-Plus Plan, to 32 per cent for the equity-oriented 20s Plan.

Except for the 30s Plan, which has a 55:45 equity-debt mix, the other Life Stage funds cannot be compared to balanced products from other fund houses. Most balanced funds now invest 60-65 per cent of their portfolio in equities and the rest in debt. The 30s plan (55 per cent equity, 45 per cent debt) appears to be the closest in structure to the existing balanced funds.

With a 33 per cent return, the fund has turned in lower returns than balanced funds such as Magnum Balanced Fund or HDFC Prudence. However, if adjusted for the lower equity exposure, its performance is reasonable and would place it in the first quartile within the balanced funds universe.

Investing in the Life Stage funds has its disadvantages; but the convenience factor would outweigh these for a passive investor. For one, by investing in the fund, you will be tying yourself to the Templeton India Growth fund, Franklin Bluechip Fund and Prima Fund. These have a good track record, but may not be the best options within each category, at any given point in time.

Second, when you invest through this fund, you cannot increase or reduce your equity or debt exposure or even your allocations to specific funds, based on your view of the market. However, by maintaining a steady-state asset allocation at all times, the fund takes care of the need to re-balance your portfolio from time to time, while providing good diversification. This should offer good protection against risk for a conservative investor.

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