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5 things to watch out for An American Ghost Story Circle of competence Saving investors from themselves GARP INVESTING – BLENDING TWOSOME IS AWESOME A good investment option Templeton’s P/E Fund
A good investment option Templeton’s P/E Fund
THE BIGGEST COMPLAINT that one hears from investors is that past returns from equity have been poor (in the last 5 years) and it is hence preferable to go through the safe fixed deposit route (never mind that with adding of inflation and taxes the real return could be negative). The second complaint

What is the idea Sirji? 

Markets swing like a pendulum from one end of pessimism to the other end of euphoria. The fund values the market based on P/E ratio and keeps selling equity and buying bonds as markets become costlier and sells bonds and buys equity as they become cheaper. This means comparatively less risk since at higher prices, stocks are sold and at lower prices they are bought. Meanwhile the money in bonds also gets interest income.

How does it work? 

This fund invests in the schemes of its own fund house. Like, it invests in its own Franklin Bluechip Fund and Templeton India Income Builder (a bond fund). As market keeps becoming costly, equity fund is sold and money moved to bonds, when equity is going down bond fund is sold and equity fund is bought. The allocation between equity and bond fund is given in the Table.
Recognising that market works in cycles and there is no way to say how high is high or how low is low, the fund lowers or increases exposure but is never fully into equity or into debt.

Why Invest
This fund was started in 2003 and would complete 10 years in Oct 2013. Its latest price is 46.29 implying an 18 per cent return over last 9 years, in the same time period BSE SENSEX has delivered 16.35 per cent returns. So an investor has got better returns with comparatively lower risk. Even in the volatile past of last 5 years the fund has given 7.67 per cent vs. NSE Nifty returns of (–) 0.62 per cent

Costs and Taxation
This is a fund of fund and hence taxed as a non-equity fund. So short term gains will be taxed at the marginal rate applicable to the investor and long term gains will be either 10 per cent without indexation or 20 per cent with indexation whichever is lower. Ideally this fund is meant for 5 years plus holding time but I would recommend for even longer periods. It makes a good entry point for investors who have not invested in equity or are afraid of the volatility of the markets. Cost (expense ratio) is a bit high since it is a fund of fund approximately 2.71 per cent per annum.

While the past may not repeat itself, investing wisely in equity markets remains the corner stone of capitalism.
Weighted average PE Ratio of Nifty is in this band...  
Then allocation will be
Equity%   Debt%
Up to 12   90-100   0-10
Above 12 – 16   70-90   10-30’
Above 16 – 20   50-70   30-50
Above 20 -24   30-50   50-70
Above 24 – 28   10-30’   70-90
Above 28   0-10   90-100

Min investment amount: Rs 5000. Min investment period: 1 year. 1 per cent exit load applicable if investment is sold before 1 year, nil after 1 year.

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