My query is regarding the Franklin India Smaller Companies Fund (G), which I entered as part of the IPO in January 2006. Since its very inception, except for brief periods of very high market buoyancy, the fund has had a pathetic performance. At the time of the IPO, it was marketed aggressively as a close-ended fund in a high growth portfolio, hence the chances of high returns being good, but none of that seems to have materialized.
My question is: Should I exit? Please factor in the penalty charged by them for early redemption into your answer?
—Mahesh Jayaraman
Franklin India Smaller Companies Fund is a closed-end equity fund. The fund invests 75 per cent of its portfolio in shares of small companies. The fund had a good run since its launch in Dec 2005 and gained 77 per cent till January 2008 but has lost all its gains in past six months. The NAV is marginally below its face value in August 2008.
Small and mid-cap stocks generally do better than large caps in a rising market but also have larger downside in a struggling market. This is evident in the brief history of the fund so far.
If the market does not witness a sharp turnaround soon, the fund is unlikely to be in good health. Even in case of broad market turnaround the small and mid-caps follow with a lag. Given the state of the market and not very a rosy outlook for the immediate future, one cannot be very optimistic about this fund's performance.
This fund could be small part of a well diversified equity portfolio, but if this is the only fund you own then you should switch to a diversified equity fund.
Franklin India Smaller Companies Fund has a five-year term but in your case you can redeem after being charged an exit load of 2 per cent.
This article was originally published on November 07, 2008.
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