Welcome to PersonalFN’s weekly analysis  on diversified equity mutual funds! In this issue, we have analysed Franklin India Flexi Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Franklin India Flexi Cap Fund is a Flexi Cap Fund that mainly invests in good-quality stocks with a long-term view to deliver solid returns with controlled risk. It is one of the older schemes in the Flexi Cap Fund category and has shown significant improvement in the last few years after facing some dull phases.

What is the growth of Rs 10,000 invested in Franklin India Flexi Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of January 02, 2024
(Source: ACE MF, data collated by PersonalFN) 

Incepted way back in September 1994, Franklin India Flexi Cap Fund stands as one of the oldest schemes in the Flexi Cap Fund category. Initially introduced as Franklin India Prima Plus, the fund concentrated on investing predominantly in large-cap stocks, along with a substantial allocation to mid-caps. In 2018, the fund was categorised as a Multi Cap Fund wherein it continued with the large-cap oriented portfolio along with strategic allocation towards mid-cap and small-cap stocks. Later, when SEBI changed the definition of Multi Cap Funds, it was recategorised under Flexi Cap funds.

Backed by an experienced fund management team, Franklin India Flexi Cap Fund has generated returns at a CAGR of about 18% since its inception. However, the fund’s long journey of over 29 years has not been a smooth one as it witnessed sharp ups and downs. Its performance encountered a dull phase in CY 2017 and 2019, as well as the market crash of 2020. Nonetheless, the fund has witnessed a steady improvement in performance since the latter half of 2020 to stand strong in the category, which has helped improve its long-term performance.

Franklin India Flexi Cap Fund has done well under the expertise of its fund manager Mr Anand Radhakrishnan, who prefers the Growth at Reasonable Valuation (GARP) investment approach to generate decent alpha. In the last 5 years, the value of the fund has appreciated at a CAGR of around 19.4%, higher than the 17.6% CAGR generated by its benchmark S&P BSE 500 – TRI index.

An investment of Rs 10,000 in the fund 5 years back would have now appreciated to Rs 24,249 as against Rs 22,519 for the simultaneous investment in its benchmark. Franklin India Flexi Cap Fund has managed to deliver reasonable returns over the long run and has rewarded investors with decent risk-adjusted returns.

How has Franklin India Flexi Cap Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	2,458	31.33	22.04	32.81	28.28	24.17	18.51	0.39
HDFC Flexi Cap Fund	42,271	30.30	24.87	28.55	19.82	18.59	15.58	0.41
Bank of India Flexi Cap Fund	492	39.16	18.71	27.71	—	—	16.08	0.38
JM Flexicap Fund	862	40.90	23.88	26.96	22.32	20.15	14.89	0.40
Franklin India Flexi Cap Fund	12,802	31.24	18.13	25.20	19.37	17.32	15.22	0.36
Parag Parikh Flexi Cap Fund	48,294	37.66	13.60	23.73	23.94	21.11	12.77	0.39
Edelweiss Flexi Cap Fund	1,412	30.06	15.64	22.22	18.80	18.71	14.68	0.32
Union Flexi Cap Fund	1,747	27.80	13.37	21.01	19.59	17.17	14.17	0.32
Navi Flexi Cap Fund	239	25.98	13.84	20.42	17.72	—	14.33	0.30
HSBC Flexi Cap Fund	3,736	31.99	16.83	20.27	16.38	15.40	13.39	0.31
NIFTY 500 – TRI		26.23	14.95	20.06	17.62	17.00	14.76	0.28

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of January 02, 2024
(Source: ACE MF, data collated by PersonalFN)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes..

After witnessing several bouts of underperformance between 2017 and 2020, Franklin India Flexi Cap Fund has registered remarkable growth in the last few years, showcasing substantial outperformance compared to its benchmark and the average performance in its category. The recent outperformance of the fund over the 2-year and 3-year periods has helped the fund improve its long-term returns as well. Over the longer time horizon of 5 years and 7 years, Franklin India Flexi Cap Fund’s returns are robust compared to the benchmark and the category average.

More importantly, in the last few years, the fund has generated superior risk-adjusted returns for its investors. With a standard deviation of 15.22%, Franklin India Flexi Cap Fund has shown relatively higher volatility in performance. Nonetheless, its Sharpe Ratio (0.36) indicating the risk-adjusted returns, is much ahead of the benchmark Nifty 500 – TRI and outpaces many of its category peers.

[Read: 4 Best Flexi Cap Funds for 2024 – Top Performing Flexi Cap Mutual Funds in India]

What is the investment strategy of Franklin India Flexi Cap Fund?

Classified as a Flexi Cap Fund, Franklin India Flexi Cap Fund has the flexibility to invest across large-cap, mid-cap, and small-cap stocks without any pre-determined limit. Accordingly, the fund aims to maintain a diversified portfolio without any market cap or sector bias. The fund follows a blend of growth and value styles of investing.

It utilises the bottom-up approach to pick high-growth stocks across sectors but at the same time remains cautious about the price that is being paid. Franklin India Flexi Cap Fund decides the market cap allocation based on the relative opportunities available; however, it prefers to maintain a large-cap-biased portfolio.

The fund focuses on investing in quality businesses having strong balance sheets and run by reliable management. Other key investment themes that Franklin India Flexi Cap Fund follows in the portfolio include:

(i) Consolidation theme – large players with significant market share growing larger

(ii) Emerging investment opportunities in the sectors benefiting from technology-led disruption

It avoids momentum-driven bets and follows a buy-and-hold approach in high-conviction stocks/sectors, even if it leads to underperformance in the short run.

What are the top portfolio holdings in Franklin India Flexi Cap Fund?

Holding in (%) as of November 30, 2023
(Source: ACE MF, data collated by PersonalFN) 

Franklin India Flexi Cap Fund holds a well-diversified portfolio spread across market caps and sectors. As of November 30, 2023, the fund held 48 stocks in its portfolio with top holdings in popular large-cap names like ICICI Bank, HDFC Bank, L&T, Axis Bank, and Infosys. Many of these stocks have been part of the fund’s top holding for over two years now.

The allocation to individual mid and small-cap stocks is usually restricted to 2% or less. The top 10 holdings in the portfolio together accounted for around 46.4% of its assets. Focusing on long-term investment strategy the fund has a low turnover ratio in the range of 14-18% in the last one year.

Franklin India Flexi Cap Fund has benefitted the most from its holdings in L&T, Axis Bank, NTPC, Jyothy Labs, ICICI Bank, Bharti Airtel, Tata Motors, and Bharat Electronics. These stocks contributed around 20% to its absolute gains in the last two years. Meanwhile, SBI, Tata Motors – DVR Ordinary, GAIL (India), United Spirits, Grasim Industries, and HCL Technologies were among the other contributors to its gains.

Franklin India Flexi Cap Fund’s portfolio consists of a fair blend of Cyclicals and Defensives. The fund has higher allocation to Banking stocks at 25.5% with an additional 2.3% in Finance stocks. Consumption, Engineering, and Infotech are among the other core sectors in the portfolio having a combined allocation of 34.1%. The fund also holds substantial exposure to Telecom, Cement, Petroleum, Auto, and Retail. About 82.9% of its portfolio is concentrated across the top 10 sector holdings.

[Read:  Multi Cap Fund v/s Flexi Cap Fund: Which is a Better Fit for Your Portfolio?]

Is Franklin India Flexi Cap Fund suitable for my investment goals and risk tolerance?

Franklin India Flexi Cap Fund has proven its ability to deliver returns superior than its peers and the benchmark index over complete market cycles. The fund places strong emphasis on effective risk management, which helps it sail through volatile market conditions and downtrends. This is evident from its superior Sharpe ratio.

Franklin India Flexi Cap Fund’s primary focus on large caps, coupled with a buy-and-hold strategy in fundamentally sound stocks, enables it to maintain the stability of the portfolio. Simultaneously, its strategic allocation to mid and small-caps helps it generate substantial wealth over longer time frames. Notably, the fund’s performance may differ from its peers that hold higher allocation to stocks in the lower market caps.

Franklin India Flexi Cap Fund is suitable for investors looking for a high conviction-oriented fund having exposure across market caps with a long-term investment horizon of at least 5 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here