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Aarati Krishnan

INVESTORS can hold their investments in Templeton India Pension Plan. The fund has generated a reasonable annualised return of 12.3 per cent in the six years since launch.

It is one of few conservative balanced funds in operation, with debt making up around 60 per cent of the portfolio, while the equity portion has consistently been less than 40 per cent. Initial investments in the scheme are eligible for a tax rebate under Section 88 of the Income-Tax Act. Fresh investments carry a three-year lock in period.

Given the three-year lock-in period, it is better if are cautious while making investments in the fund. Fresh investments may thus be put off for now, given that it has recently undergone a change in management.

In the third quarter of 2002, the Franklin Templeton group acquired this fund from Pioneer ITI. This was followed by the induction of separate fund managers for the equity and debt portions of the portfolio. While Mr Sukumar continues to manage the equity portion, Mr Rahul Goswami now manages the debt portion. The following features emerge from a study of the fund's portfolio since April 2002:

The fund's returns over the past year, at 9.7 per cent, appear rather low when one takes into account the higher returns managed by both pure debt and equity funds over this period.

For instance, the Templeton Income Builder Account returned 14.5 per cent over the past year, while the Bluechip Fund generated 15 per cent. The lower returns from the Pension Plan may be a result of two factors.

For the debt portion of its portfolio, the fund appears to have adopted a less aggressive stance than was normal for a bond fund over the past year.

One, the fund has consistently kept the maturity profile for the debt portion between one-and-a-half and two years, which is on the lower side compared to most pure bond funds. The fund is, therefore, likely to have made lower gains from the decline in interest rates over the past year than bond funds which with longer maturity profiles.

Two, the fund has consistently invested the bulk of its debt portfolio in corporate bonds rather than gilts. This may have restricted the scope for trading gains on the portfolio. But the conservative strategy practised by the fund for its debt portfolio, though it has yielded lower returns over the year, may be wise.

Given that this is positioned as a long-term investment for conservative investors, it is a positive sign that the fund has not taken significant price risks for the bond portion of its portfolio.

The second factor that appears to have impacted the fund's returns is the rather high proportion of cash and other current assets in its portfolio. The fund had a 25 per cent exposure to current assets in April 2002, which slid to 13 per cent by June 2002 and further to 6 per cent by September 2002.

However, since then, the current assets have once again climbed to 13 per cent of the assets by February 2003. The fund could have held a high proportion of liquid assets in April-June 2002 to meet redemption demands if any, during the transition period after the merger.

But with the proportion of current assets continuing to be high even in the subsequent months, this could have been a factor in trimming returns from the fund.

The equity portion of the fund has also seen substantial changes over the last year, with the stepped-up exposures to oil and gas and banking stocks. Indo Gulf, GAIL and HPCL were some of the new entrants to the equity portfolio.

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