Franklin India Bluechip Fund is a good option for first-time investors in equity mutual funds and those looking to build long-term wealth with quality stocks. With a return of 23 per cent compounded annually since its launch in 1993, the fund has an impressive track record. Investors can use the systematic investment route to build their portfolio.

Why large caps?

Stock market gains in the last six months have been driven mainly by mid-cap stocks. As such companies perform well when interest rates decline, the RBI’s change in stance on interest rates has fuelled the rally. But the recent pause in rate cuts combined with a significant slowdown in economic activity, means that the revival story for smaller and mid-size companies may not happen very soon.

Despite demonstrating higher resilience, the stock price performance of large-size companies have been lacklustre in the last six months, thus depressing the valuations of quite a few bluechips. Their current valuations in terms of price-earnings ratio as well as dividend yield have, therefore, turned attractive.

With a track record of consistent performance, Franklin India Bluechip is a good option among the large-cap-focussed funds. An SIP in Franklin Bluechip over the last ten years would have delivered an annual return of 20 per cent. The fund’s 10.7 per cent return over a three-year period may not seem impressive. But it is still better than the Sensex return of less than 5 per cent and category return of 7 per cent. On a rolling-return basis, the fund’s annual return has outperformed its benchmark 97 per cent of the times in the last three years. That means, the chances of your investment having underperformed the Sensex over the above period was almost nil. This demonstrates the fund’s consistency in performance.

Franklin India Bluechip is not the top performing scheme in its category, though. In recent years, ICICI Pru Bluechip has bettered in terms of returns. But this fund is yet to prove its mettle in severe market corrections like the one in 2008.

One other benefit of holding Franklin Bluechip is its consistent dividend-paying policy. The periodic profit booking augurs well for a conservative investor.

As of May 2012, the fund’s top sectors were banks, pharma, IT and power. A good number of stocks in sectors such as banks and power have seen a dip in valuations in recent times, suggesting that the fund may be preferring a value portfolio. That it is underweight on the richly valued FMCG space also reinforces this strategy. Hindustan Unilever, Marico and ITC were some of the stocks that exited the portfolio late 2011. Maruti and YES Bank are some of the recent additions. The fund is managed by Mr Anand Radhakrishnan and Mr Anand Vasudevan. The NAV per unit under the growth scheme is Rs 209.5.

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