After the defaulting episodes of IL&FS and DHFL, many liquid funds posted steep losses as they were having exposure to these companies. It made the investors aware that debt fund investment isn’t completely risk-free.
While liquid funds were widely perceived to be a safe and better alternative to short-term deposits offered by banks, their popularity has waned in recent times.
Investors have become more conservative and vying for options that are less risky. And the overnight fund is a plausible choice.
Overnight fund is a category of debt scheme emerged after the SEBI’s recategorization norms.
It has the shortest investment duration of one day and provides better returns than bank FDs and are more liquid. The interest rate risk involved therein is near zero. However, there can be a reinvestment risk, i.e. overnight funds may not be able to reinvest their proceeds at the same rate of return, but at least that doesn’t cause any capital erosion.
On the risk-return spectrum, overnight funds are placed lower that carries the least amount of investment risk.
Graph: Indicative Risk Return Matrix -Debt Categories
(Source:
PersonalFN Research)
Several fund houses saw this as an opportunity to win back investors’ confidence with respect to debt fund investments
Franklin India Mutual Fund joined the bandwagon and launched an open-ended debt scheme, Franklin India Overnight Fund (FIOF). It will invest predominantly in debt & money market instruments having a maturity of one business day.
Thus, it is suitable for conservative investors who want to park their money for a time period of one month or less than a year.
Table 1: NFO Details
| Type | An open-ended debt scheme investing in overnight securities. | Category | Overnight Fund |
| Investment Objective | The Scheme intends to provide reasonable income along with high liquidity by investing in overnight securities having a maturity of 1 business day.
There can be no assurance that the investment objective of the scheme will be realized |
||
| Min. Investment | Rs 5,000 and in multiples of Re 1 thereafter | Face Value | Rs 1,000 per unit |
| Plans |
* Default option |
Options |
* Default option |
| Entry Load | Not Applicable | Exit Load | Nil |
| Fund Manager | Mr Pallab Roy and Mr Umesh Sharma | Benchmark Index | CRISIL Overnight Index |
| Issue Opens | May 7, 2019 | Issue Closes: | May 8, 2019 |
(Source: Scheme Information Document)
How will franklin India Overnight Fund allocate its assets?
Under normal circumstances, the scheme’s asset allocation pattern will be as under:
Table 2: FIOF’s Asset Allocation
| Instruments | Normal Allocation# | Risk Profile |
|---|---|---|
| Debt & Money Market Instruments including cash & cash equivalent^ with residual maturity up to one business day | Up to 100% | Low |
^Investment in Securitized debt up to 10%
#The scheme may have exposure in the following:
1.Repos in corporate debt securities in accordance with the directions issued by RBI and SEBI from time to time.
2. Securities Lending – A maximum of 40% of net assets may be deployed in securities lending and the maximum single party exposure may be restricted to 10% of net assets outstanding at any point of time.
The Scheme shall not engage in securities borrowing and short selling activities. The Scheme shall not invest in REITs, InvITs, foreign securities and foreign securitized debt.
It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of the Investment Manager, the intention being always to seek to protect the interests of the Unitholders. The asset allocation pattern described above may alter from time to time on a short-term basis on defensive considerations, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors (i.e., for reasons other than downgrade in rating) and would, in such cases, shall be rebalanced within 7 days from date of deviation. However, if the asset allocation pattern is to be altered for other reasons, as this is a fundamental attribute, the procedure outlined in the paragraph on fundamental attributes below, shall be followed.
(Source: Scheme Information Document)
What will be the Investment Strategy?
The primary objective of the scheme is to provide reasonable income along with high liquidity by investing in overnight securities having a maturity of 1 business day. The scheme strives to provide steady income and high liquidity through a judicious mix of short-term debt and money market instruments.
The scheme aims to identify securities in the short-term instruments including Tri-Party Repos (TREPS), Reverse repos, debt instruments with overnight maturity. The scheme intends to hold short-term securities to minimize price volatility.
Who will manage the Franklin India Overnight Fund?
The Franklin India Overnight Fund will be managed by Mr Pallab Roy and Mr Umesh Sharma.
Mr Pallab Roy is an Assistant Vice President and Portfolio Manager of Fixed Income at the AMC. He holds a master’s degree in commerce from Rani Durgavati University, Jabalpur and earned his M.B.A from IMS(UD), Devi Ahilya University Indore and diploma in business finance from ICFAI, Hyderabad. He has a total work experience of 17 years in investment and research.
Mr Roy has been associated with Franklin Templeton Asset Management (India) Pvt. Ltd. since June 2001 and is responsible for Liquidity Management & Portfolio MIS of Fixed Income funds.
Currently, some of the other schemes managed by him at the fund house include, Franklin India Floating Rate Fund, Franklin India Liquid Fund, Franklin India Savings Fund and Franklin India Ultra-Short Bond Fund
Mr Umesh Sharma is currently the Vice President and Portfolio Manager of Fixed at Franklin Templeton Asset Management (India) Pvt. Ltd. and has 18 years of work experience in investment and research in the Indian financial service industry.
Mr Sharma is a qualified Chartered Accountant and a Company Secretary. He is a Chartered Financial Analyst (CFA) Charterholder from Association of Investment and Management Research, USA.
Prior to joining Franklin Templeton Mr Sharma has worked with Religare Asset Management Company Pvt. Ltd., (erstwhile Lotus India Mutual Fund) as a Portfolio Manager responsible for managing fixed income bond portfolios for four years. Before that, he has been associated with ICICI Bank, JM Financial Mutual Fund and UTI Mutual Fund.
Currently at the fund house Mr Sharma manages Franklin India Government Securities Fund, Franklin India Dynamic Accrual Fund, Franklin India Banking & PSU Debt Fund, Franklin India Floating Rate Fund, Franklin India Corporate Debt Fund, Franklin India Liquid Fund, Franklin India Savings Fund, Franklin India Debt Hybrid Fund (Debt portion), Franklin India Equity Hybrid Fund (Debt Portion), Franklin India Pension Plan (Debt Portion) and Franklin India Fixed Maturity Plans-Series 1 to Series 6
Table 3a: Performance of schemes managed by Mr Pallab Roy and Mr Umesh Sharma
| Scheme Name | SI Benchmark Name | Managing Since | Scheme Return (%) | Benchmark Return (%) |
|---|---|---|---|---|
| Franklin India Floating Rate Fund | Crisil Liquid Fund Index | Jan-2011 | 6.64 | 8.08 |
| Franklin India Savings Fund | Jun-2008 | 8.07 | 7.58 |
(Performance data as on May 8, 2019)
(Source: ACE MF)
Table 3b: Performance of schemes managed by Mr Umesh Sharma
| Scheme Name | Benchmark Name | Managing Since | Scheme Return (%) | Benchmark Return (%) |
|---|---|---|---|---|
| Franklin India Banking & PSU Debt Fund | Crisil Composite Bond Fund Index | Apr-2014 | 8.14 | 8.89 |
| Franklin India Dynamic Accrual Fund | Jul-2010 | 8.67 | 8.01 | |
| Franklin India Corp Debt Fund | Crisil Short Term Bond Fund Index | Jul-2010 | 9.05 | 8.18 |
(Performance data as on May 8, 2019)
(Source: ACE MF)
Table 3c: Performance of scheme managed by Mr Pallab Roy
| Scheme Name | Benchmark Name | Managing Since | Scheme Return (%) | Benchmark Return (%) |
|---|---|---|---|---|
| Franklin India Ultra Short Bond Fund | Crisil Liquid Fund Index | Dec-2016 | 8.73 | 7.17 |
(Performance data as on May 8, 2019)
(Source: ACE MF)
As can be seen, the funds managed by fund managers have marginally outperformed than the Benchmark, hence the management style is modest.
The outlook for Franklin India Overnight Fund:
Franklin India Overnight Fund intends to achieve the objective by investing predominately in overnight securities. So, the fund managers may invest in securities that could be listed, unlisted, publicly offered, privately placed, secured, unsecured, rated or unrated.
The securities may be acquired through public offerings (IPOs), secondary market operations, private placement, rights offer or negotiated deals. It may also enter into repurchase and reverse repurchase obligations in all securities held by it as per the guidelines and regulations applicable to such transactions.
Government and Public Sector Enterprises are the predominant borrowers in debt markets. Initially, the debt markets were regularised, and the interest rate was in line with the repo rates. But lately there has been rapid deregulation and currently, both the lending and deposit rates are market determined.
Hence, the actual yields of the Franklin India Overnight Scheme will vary in line with general levels of interest rates and debt/money market conditions prevailing from time to time. Franklin India Overnight Fund will be sensitive to systemic liquidity. Excess liquidity may drag the potential return down and vice-versa.
However, if you are extremely conservative and wish to park money for the very short-term, say from day to a week, one can consider an overnight fund as a substitute for holding money in a savings bank account.
