Franklin India Prima Plus: Buy

With a one-year return of 62 per cent, Franklin India Prima Plus sits comfortably in the top quartile of large-cap equity funds and has stayed at the top over the long-term period of five, and even 10 years. This is a scheme with relatively low risks and consistently above-average returns over the long term.

While Franklin Prima Plus suffers bouts of underperformance, it tends to even out over the long term. On a rolling return basis over the past 10 years, the fund has kept ahead of the CNX 500 index benchmark a healthy 85 per cent of the time.

The fund refrains from heavy churn in holdings, picks quality stocks at reasonable valuations and puts some of its portfolio in mid-cap stocks, with the majority parked in stable large-caps. It also takes relatively concentrated exposures in its top few holdings. Such an approach makes the fund suitable for investors with a moderate risk appetite who are willing to remain invested for at least five years.

In one-, three-, and five-year periods, the fund has beaten the CNX 500 by a margin of 7 to 20 percentage points.

The fund does not participate as well as peers in rising markets — it was ranked in the mid-quartile section in the two previous rising cycles. But in falling markets, the fund’s focus on quality and valuations pays off and downsides are contained far better than its benchmark as well as its category.

For instance, while the fund just about matched the average category return in the 2012 run-up fuelled by mid-caps, the 2011 bear market saw it lose 20 per cent compared with the average loss of 27 per cent.

Franklin Prima Plus averages 93 to 95 in equity exposure. Around 80 per cent of the portfolio is invested in large-cap stocks (those with a market capitalisation of over ₹10,000 crore) with the remaining in mid-caps. Most picks in the mid-cap space have sound fundamentals such as Amara Raja Batteries, CARE, SKF India and Voltas.

The top three sectors usually account for 40 per cent of Franklin Prima Plus’s portfolio, and for the past few years, these have been banks, software and pharmaceuticals. But given the promise in the banking space now, holding has been raised significantly to 28 per cent, the highest in five years, and exposure to software and pharmaceuticals cut sharply.

As the current market rally took root, the fund bought into automobiles, ancillaries, engineering, and construction.