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Franklin India Prima Fund is one of the first funds launched by a private sector mutual fund in the Indian mutual fund industry. According to the CRISIL Mutual Fund Ranking for the quarter ended September 2013, the fund was ranked CRISIL Fund Rank 2 (good performance) in the small- and mid- cap equity category.
The fund has been ranked within the top 30 percentile (Fund Rank 1 or Fund Rank 2) for the past four quarters. The quarterly average assets under management (AUM) stood at ₹ 769 crore as of September 2013. The fund is being co- managed by R Janakiraman and K N Sivasubramanian.
Investment philosophy
The fund aims to generate mediumto long- term capital appreciation by investing in a diversified portfolio of small- and medium- sized enterprises, which have the potential for higher growth. The fund intends to follow a bottom- up stock picking approach.
Performance
The fund has outperformed its benchmark (CNX 500), additional benchmark ( CNX Midcap) and the category as represented by CRISILAMFI Small & Midcap Fund Performance Index across various time frames. Over the past 10 years, the fund has given annualised return of 18 per cent, compared to its benchmarks 14.09 per cent and additional benchmarks 14.65 per cent.
An investment of ₹ 1,000 since the funds inception on December 1, 1993 would have appreciated to ₹ 33,140 at a compounded annualised growth rate (CAGR) of 19.13 per cent until November 26, 2013. The same amount invested in the benchmark would have grown to ₹ 5,544 at 8.94 per cent CAGR, thereby emphasising the benefit of long- term investing and power of compounding. A monthly investment of ₹ 1,000 over a 10- year period under the systematic investment plan ( SIP) until November 26, 2013 would have grown to about ₹ 2.30 lakh ( on an investment of ₹ 1.2 lakh). Therefore, the SIP investment would have yielded a CAGR of 12.55 per cent. A similar investment in the CNX 500 and CNX Midcap would have grown to ₹ 1.92 lakh at a CAGR of 9.15 per cent and ₹ 1.90 lakh at a CAGR of 8.90 per cent, respectively.
The funds consistent performance is also associated with lower volatility or risk (measured by standard deviation). The funds volatility of 16.74 per cent is less compared to the CNX 500 (21.03 per cent), CNX Midcap (21.50 per cent) and is marginally higher than the category ( 16.60 per cent) over a three- year period.
Market Phase Analysis
The fund has dynamically managed its equity allocation during volatile equity market. Following the sub- prime crisis, as the markets rebounded from April 2009 onwards, the fund increased its equity exposure from 89.78 per cent in March 2009 to 94.50 per cent in December 2010. During the same period, the fund gave 73.46 per cent annualised return compared to CNX 500 s 53.83 per cent and CNX Midcap Indexs 71.87 per cent.
As the market started to fall amid the European crisis, the fund reduced its equity exposure from 97.10 per cent in January 2011 to 89.36 per cent in June 2013. The fund gave a 0.64 per cent annualised return compared to the benchmarks - 4.77 per cent (CNX 500) and - 9.62 (CNX Midcap Index). Thus, the fund has outperformed in both the market phases.
The fund had an average equity exposure of 93 per cent over the past three years ended October 2013.
Portfolio Strategy
As of October this year, 71 per cent of its average equity exposure is in small- and mid- cap stocks and the rest in large- cap stocks over the past three years.
The fund is well diversified at both stock and sector levels, compared to the category.
The fund held 51 stocks in its portfolio (average) compared to 48 of the category over the past three years. During the same period, 15 stocks have been consistently held in the portfolio constituting 46 per cent of the equity portfolio. Superior performance of the fund can be attributed to key stock selections such as Amara Raja Batteries, Pidilite Industries, IPCA Laboratories, IndusInd Bank, Torrent Pharmaceuticals and Shree Cements.
The funds exposure to the top 10 industries had been 74.36 per cent vis- à- vis the categorys 79.35 per cent. Overweight exposure to pharmaceuticals and underweight stance on industrial capital goods and construction have helped the fund outperform the benchmark and the category. These industries represented by CNX Pharma Index, S& P BSE Capital Goods and CNX Realty gave 15.67 per cent, - 16.63 per cent and - 28.97 per cent annualised returns, respectively, compared to 6.96 per cent of the CNX Midcap index over a three- year period ended
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