Franklin India Corporate Bond Opportunities Fund (FICBOF) November 2017
Popular Strategies followed by Debt Mutual Funds to generate α High Accrual Led Strategies Primary objective is to generate accrual returns by investing in securities with higher yields and potential for capital gains over the long term. TOTAL RETURN Capital Appreciation Led strategies Primary objective is to generate returns by actively managing portfolio duration based on market outlook without taking substantial credit risk. TOTAL RETURN ACCRUAL CAP GAIN/LOSS ACCRUAL CAPITAL GAINS Higher Yield is obtained by Managing Credit Risk through bottom-up security selection Buy & Hold Investments are generally held till Maturity Accrual strategies are generally market timing agnostic Capital Gains are obtained by Managing Interest Rate Risk through top-down Macro analysis Active Management based on Market Outlook Capital appreciation strategies focus on market timing High Accrual-led Strategies aim to generate α by managing Credit Risk while minimizing Interest Rate Risk This slide is for illustration purposes only and should not be construed as an investment strategy / investment advice. 1
Why High Accrual Led Strategies? ACCRUAL Bank Fixed High Deposits Accrual PPF Led Strategies NSC Debt Mutual Funds Corporate Bonds Advantages of High Accrual Led Strategies Anchor Your Portfolio TOTAL RETURN CAP APP Government Bonds Dividend Paying Capital Stocks Appreciation Equity Led Mutual Strategies Funds Managed Credit Helps identifying securities with Higher Yields Private Equity Potential of generating less Volatile Returns Self-Occupied across Market Real Conditions Estate Physical Gold Potential of & Gold Capital ETFs Gains in the Long Term Potential to Generate Higher Returns Increased Volatility of Capital 2
Credit Risk Higher Yields through Managed Credit But isn t Managed Credit inherently Risky? High Accrual Led Strategies Source of α Higher Yield + Capital Gains Credit Risk Medium Level of Risk Interest Rate Risk Low to Medium Capital Appreciation Led strategies through G-sec/AAA bonds Source of α Capital Gains Low Level of Risk Credit Risk Interest Rate Risk High Interest Rate Risk Level of Risk for High Accrual Led strategies may be relatively lower than the risk for High Credit (through G-Sec/AAA bonds) Capital Appreciation Led strategies 3
High Accrual Led Strategies tend to generate stable returns Returns High Accrual Led vs Capital Appreciation Led Strategies Hypothetical returns over an interest rate cycle assuming that interest rates increased by 50bps in Years 4,8,10 while decreased by 50 bps in Years 2,5,6. It remained constant in other years. Higher Yields Lower Volatility of Capital Gains/Losses Compounded Annual Return: 9.55% Standard Deviation: 0.71% Compounded Annual Return: 9.55% Standard Deviation: 5.28% Due to lower volatility of Capital and Higher Yields, High Accrual Led Strategies aim to deliver less volatile returns The aforesaid portfolios are for illustration purposes only and should not be construed as investment strategies / investment advice. Investors should consult their investment advisor and construct their portfolios based on their risk appetite, time horizon, investment goals, etc. 4
Open-End Accrual Led Debt Funds Stand to benefit The change in holding period for Long Term Capital Gain benefit will reduce liquidity pressures/risk, especially for short term debt funds. Factor Open-Ended Closed-Ended Liquidity Management Does the fund need active liquidity management to meet redemptions? Yes No Portfolio Management Does the fund manager have flexibility to benefit from market opportunities? Yes Limited (buy & hold strategy) Maturity profile constraints Does the constraint of maturity date restrict the investment opportunities? No Yes Relative ease of redemption Can an investor redeem in case of emergency? Yes Limited (has to be sold over the stock exchange) Open-ended debt funds: Offer liquidity and LTCG benefit (for >36 months) without any re-investment hassles. Close-ended debt funds: Require investment for a tenure of minimum 36 months to qualify for LTCG. 5
How to invest in a fund with High Yield? Presenting Franklin India Corporate Bond Opportunities Fund (FICBOF) This product is suitable for investors who are seeking* Medium to long term capital appreciation with current income A bond fund focusing on corporate securities *Investors should consult their financial advisors if in doubt about whether the product is suitable for them. 6
Investment Strategy Franklin India Corporate Bond Opportunities Fund Composition: Corporate Bond Focus Aims to provide regular income and capital appreciation by investing predominantly in corporate bond segment in India. Portfolio Duration: Short to Medium Management of Interest Rate Risk by generally keeping short to medium portfolio duration. Portfolio Strategy: High Accrual Led, Short to Medium Duration Management Strategy Active management of Credit Risk through Investment in Managed Credit space and Interest Rate Risk through opportunistic duration management in short to medium term space. 7
Managing Credit Risk Product Positioning Franklin India Corporate Bond Opportunities Fund (FICBOF) Managed Credit FICBOF Medium Portfolio Duration Managing Interest Rate Risk FICBOF : An Accrual Led Fund which aims to focus on High Accrual Strategy through Managed Credit and short to medium Portfolio Duration Past performance may or may not be sustained in the future. 8
Interest Rate Sensitivity Product Attributes Franklin India Corporate Bond Opportunities Fund Credit Quality 1 Focuses on fixed income securities with high accrual and potential for capital gains in line with its maturity profile. High 2 Aims to primarily invest in corporate bonds. Medium High Medium Low Low 3 Aims to generate steady return in fixed income market by managing credit risk through investments in managed credit space and interest rate risk through opportunistic duration management in short to medium term space. 4 This fund is suitable for investors with a medium term investment horizon. 9
Portfolio Composition (as of 31-October-2017) Franklin India Corporate Bond Opportunities Fund Composition by Assets Composition by Rating 2.70% 6.19% 27.51% 0.93% 97.30% 65.37% CARE AAA/CARE AAA(SO)/CRISIL A1+/CRISIL AAA ^^ Corporate Debt Other Assets Average Maturity 2.45 years YTM 9.89%* Modified Duration 1.83 years** Asset size (Rs. Crs) 6709.83 BWR AA/BWR AA-/CARE AA/CARE AA-/CARE AA(SO)/CARE AA+/CRISIL AA/CRISIL AA-/CRISIL AA(SO)/ICRA AA/ICRA AA-/ICRA AA(SO)/ICRA AA-(SO) BWR A-(SO)/BWR A+ (SO)/CARE A(SO)/CARE A+/CARE A+(SO)/CRISIL A-/ICRA A/ICRA A(SO)/ICRA A+/ICRA A+(SO)/IND A/IND A-/IND A+/IND A+(SO) Privately Rated ^ ^Rated by SEBI Registered Agency ^^includes Call, Cash & Other Current Assets * Pre fund expenses. **Modified duration of floating rate securities is calculated based on the next reset date. 10
Historical Yields Monthly Yield to Maturity, Period: Jan 2012 Oct 2017 14.0% 12.6% 12.0% 10.7% 10.0% 9.9% 9.9% 9.1% 8.0% 7.7% 7.8% 6.0% 6.1% 6.2% 4.0% 2.0% 0.0% Min Max Average FICBOF 9.9% 12.6% 10.7% 1-year T-Bill Yield 6.1% 9.9% 7.7% 10-year G-Sec Yield 6.2% 9.1% 7.8% Past performance may or may not be sustained in the future. Source for T-Bill & G-Sec Yield: Reuters Data as on last working day of the month 11
Historical Durations Monthly Modified Duration, Period: Jan 2012 Oct 2017 3.00 2.50 2.66 2.12 2.00 1.50 1.47 1.00 0.50 0.00 Min Max Average Past performance may or may not be sustained in the future. Data as on last working day of the month 12
Scheme Performance (as of Oct 31, 2017) Scheme NAV as on Oct 31, 2017 Compounded Annualised Growth Rate Performance (%) Last 1 year (Oct 28, 2016 to Oct 31, 2017) Last 3 Years (Oct 31, 2014 to Oct 31, 2017) Last 5 Years (Oct 31, 2012 to Oct 31, 2017) Since inception till Oct 31, 2017 Value of Investment of Inception Date Rs.10,000 since inception NAV* Returns NAV* Returns NAV* Returns NAV* Returns Franklin India Corporate Bond Opportunities Fund (FICBOF) - Growth 17.5900 16.0773 9.33% 13.4863 9.25% 11.1458 9.55% 10 10.04% 17,590 7.12.2011 B: Crisil Short-Term Bond Fund Index - - 7.28% - 8.68% - 8.87% - 8.93% 16,568 AB: Crisil 10 Year Gilt Index - - 5.11% - 9.43% - 7.89% - 8.19% 15,915 Performance of other schemes managed by the fund managers of the scheme Franklin India Income Opportunities Fund (FIIOF) - Growth 20.1122 18.3252 9.67% 15.4048 9.29% 12.7614 9.52% 10 9.26% 20,112 11.12.2009 B: Crisil Short-Term Bond Fund Index - - 7.28% - 8.68% - 8.87% - 8.21% 18,646 AB: Crisil 10 Year Gilt Index - - 5.11% - 9.43% - 7.89% - 6.67% 16,651 Franklin India Income Builder Account (FIIBA) - Growth 59.7999 54.8231 9.00% 46.0784 9.07% 38.1158 9.42% 10 9.18% 59,800 23.6.1997 B: Crisil Composite Bond Fund Index - - 7.17% - 9.92% - 9.25% - N.A^^^ N.A^^^ AB: Crisil 10 Year Gilt Index - - 5.11% - 9.43% - 7.89% - N.A^^^ N.A^^^ Franklin India Dynamic Accrual Fund (FIDA) - Growth 59.9085 54.5272 9.78% 44.5503 10.37% 38.2768 9.37% 10 9.05% 59,909 5.3.1997 B: Crisil Composite Bond Fund Index - - 7.17% - 9.92% - 9.25% - N.A^^^ N.A^^^ AB: Crisil 10 Year Gilt Index - - 5.11% - 9.43% - 7.89% - N.A^^^ N.A^^^ Franklin India Short-Term Income Plan (FISTIP) - Retail - Growth 3580.6501 3254.8089 9.93% 2745.9640 9.24% 2269.1000 9.55% 1000 8.43% 35,807 31.1.2002 B: Crisil Short-Term Bond Fund Index - - 7.28% - 8.68% - 8.87% - N.A^^^ N.A^^^ AB: Crisil 1 year T-Bill Index - - 5.92% - 7.30% - 7.23% - 5.99% 25,001 Franklin India Low Duration Fund (FILDF) Monthly Dividend Plan^ 10.5799 10.5661 9.13% 10.4758 9.57% 10.3525 9.63% 10 7.99% 39,123 7.2.2000 B: Crisil Short-Term Bond Fund Index # - - 7.28% - 8.68% - 8.87% - N.A^^^ N.A^^^ AB: Crisil 1 year T-Bill Index - - 5.92% - 7.30% - 7.23% - 6.40% 30,048 Past performance may or may not be sustained in future. Fund Managers: FICBOF/FIIBA/FIIOF: Santosh Kamath (Managing Since 15-Apr-14) & Sumit Gupta (Managing Since 15-Apr-14), FISTIP/FILDF: Santosh Kamath (Managing Since 15-Apr-14) & Kunal Agrawal (Managing Since 15-Apr-14), FIDA: Santosh Kamath (Managing Since 23-Feb-15), Umesh Sharma (Managing Since 05-Jul-10) & Sachin Padwal Desai (Managing Since 07-Aug-06). B: Benchmark. AB: Additional Benchmark. N.A.: Not Applicable. *NAV (beginning of period). The FICBOF fund manager Santosh Kamath & Sumit Gupta manages 6 & 3 schemes of Franklin Templeton Mutual Fund respectively. Period for which scheme s performance has been provided is computed basis last day of the month-end preceding the date of advertisement. Different plans have a different expense structure. The performance details provided herein are of Regular Plan. Load is not taken into consideration. Dividends assumed to be reinvested and Bonus is adjusted. On account of difference in the type/category, asset allocation or investment strategy, inception dates, performances of these funds are not strictly comparable. Please refer to www.franklintempletonindia.com for details on performance of all schemes (including Direct Plans). # Index adjusted for the period April 1, 2002 to November 29, 2010 with the performance of Crisil MIP Blended Index. ^ Dividend Plan returns are provided since Growth Plan was introduced later in the scheme w.e.f. July 26, 2010. Performance of dividend plan would be at the gross rates. ^^^ As the scheme was launched before the launch of the benchmark index, benchmark index figures since inception are not available. 13
Historical Rolling Returns 1-year Returns, Monthly Steps, Dec 2012 Oct 2017 20.0% 17.5% 15.0% 13.0% 11.2% 10.0% 9.8% 9.1% 8.7% 6.4% 6.7% 5.0% 0.0% -3.0% -5.0% Min Max Avg FICBOF 6.4% 13.0% 9.8% Crisil Short-Term Bond Fund Index 6.7% 11.2% 9.1% Crisil 10 year Gilt Index -3.0% 17.5% 8.7% Past performance may or may not be sustained in the future. Returns are based on Total Returns. Data as on last working day of the month 14
Fund Snapshot Franklin India Corporate Bond Opportunities Fund Type of Fund An Open end Income Scheme Inception Date December 7, 2011 Benchmark Fund Manager Plan / Option Crisil Short Term Bond Fund Index Santosh Kamath & Sumit Gupta Growth, Dividend (with reinvestment and payout options), Direct-Growth and Direct-Dividend (with reinvestment and payout options) Minimum Amount Minimum Investment/Multiples for New Investors: INR 5000/1 Additional Investment/Multiples for Existing Investors: INR 1000/1 Entry Load Exit Load NIL Upto 10% of the Units may be redeemed without any exit load in each year from the date of allotment.* Any redemption in excess of the above limit shall be subject to the following exit load: 3% - if redeemed on or before 12 months from the date of allotment 2% - if redeemed after 12 months but within 24 months from the date of allotment 1% - if redeemed after 24 months but within 36 months from the date of allotment Nil - if redeemed after 36 months from the date of allotment *This no load redemption limit is applicable on a yearly basis (from the date of allotment of such units) and the limit not availed during a year shall not be clubbed or carried forward to the next year 15
Risk Factors 16 The information contained in this presentation is not a complete representation of every material fact regarding any industry, security or the fund and is neither an offer for units nor an invitation to invest. This communication is meant for use by the recipient and not for circulation/reproduction without prior approval. The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Scheme Classification and Objective: Franklin India Corporate Bond Opportunities Fund (FICBOF) is an open-end Income fund which seeks to provide regular income and capital appreciation through a focus on corporate securities. Load Structure: The investors are requested to check the prevailing load structure of the scheme before investing. Please refer website/latest SID/addenda for the latest load structure of the scheme. Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. The past performance of the mutual funds managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme. 16
Franklin Templeton Asset Management (India) Pvt. Ltd. Indiabulls Finance Centre, Tower 2, 12 th and 13 th floor, Senapati Bapat Marg, Elphinstone (W) Mumbai 400013 Tel (91-22) 6751 9100 Fax (91-22) 6639 1281 www.franklintempletonindia.com 2014 Franklin Templeton Investments. All rights reserved. 17
Appendix 18
Franklin Templeton India Fixed Income Investment Philosophy Optimizing Trade-offs Managing Risk while Generating Returns Active Alpha Generation Attempt to optimize the trade-off between safety, liquidity and returns Disciplined investment process with a stringent focus on credit quality. Alpha generation not at the cost of risk management Focus on generating active alpha through bottom-up security selection 19
How do we Manage Credit? Identification of Mispriced Opportunities Security Level Due-Diligence Focus on companies with sound management and strong fundamentals Focus on identifying securities that may be mispriced by the market. 20
Yield to Maturity (YTM)* Franklin Templeton s Fixed Income Product Range YTM and Duration as of 31-Oct-2017 11.00% 10.50% 10.00% 9.50% FICBOF FIIOF FIDA FISTIP 9.00% FILDF FIIBA 8.50% 8.00% FIUBF 7.50% FISPF FIBPDF 7.00% FITMA FIGSF - CP/PF FIGSF - LT 6.50% 6.00% FICMA 0 1 2 3 4 5 6 7 8 Modified Duration (in years)** Depending on the investment horizon and risk appetite, an investor can choose any of Franklin Templeton s Accrual Led Products Past performance may or may not be sustained in the future. *Pre fund expenses. YTM is the weighted average yield of portfolio based on the security level yield. Security level yield for securities with maturity greater than 60 days is the simple average of yield provided by AMFI designated agencies and for securities with maturity up to 60 days it is the last traded/valuation yield. ** Modified duration of floating rate securities is calculated based on the next reset date. 21