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Templeton to launch first Fund of Funds

How would it be if your mutual fund took care of your asset allocation needs? Templeton Asset Management is planning to do just this and has filed an offer document for India's first fund of Fund

Templeton Asset Management is set to launch the first Fund of Funds in the Indian mutual fund industry. Known as the Franklin Templeton India Life Cycle Fund, this fund aims to allocate assets by investment in five diiferent funds of the Templeton Mutual Fund. Out of these five, three are equity schemes, namely Franklin India Bluechip fund (FIBCF), Franklin India Prima Fund (FIPF) and Templeton India Growth Fund (TIGF). The remaining two are debt funds and these are Templeton India Income Fund (TIIF) and Templeton India Income Builder Account (TIIBA).

This fund of fund will have three plans, namely Growth Stage, Stability Stage and Retirement Stage. The asset allocation for each of these plans can be seen from the table.


Three Asset Allocation Choices
Plans  Equity(%)   Debt(%)
Growth Stage 75 25
Stability Stage 50 50
Retirement Stage 25 75
As per offer document filed with Sebi
What is Fund of Funds?
Financial advisors will tell you to diversify your investments across mutual funds. So, your portfolio is likely to have HDFC Equity and Franklin India Bluechip in equity funds, Principal Income Fund and JM Income Fund. And, perhaps, Reliance Vision to provide the kicker to your portfolio.

Now, imagine this task being managed by a mutual fund. A fund of funds (FoF) is such a concept. A fund of funds is as the name suggests a collection of funds. It is a financial instrument, which invests in a number of mutual fund schemes. So just as a mutual fund is a collection of stocks or bonds, a FoF is a collection of funds.

The possible benefits of this concept could be numerous. One could obtain combinations of the best performing funds of different fund houses. As the fund of funds would monitor the portfolio and make changes from time to time, the hassles of tracking funds would be done away for the investor. More importantly, mutual fund schemes are exempt from taxes on their capital gains. This would make a FoF a very tax friendly instrument whenever the portfolio is rebalanced between equity and debt. As compared to this, investors have to pay capital gains tax when they redeem profits from funds.