In over two years of its existence, Templeton Floating Rate Short-term Fund has delivered an annualised return of 6 per cent. Even its worst monthly return stands at 0.34 per cent (annualised 4.1 per cent) provides enough poof of its stability.
The main reason for the fund's consistency has been its ability to avoid credit as well as interest rate risks. In the past one-year, its average maturity has moved in a narrow band of 3-10 months. The fund's portfolio mostly comprises of P1+ rated short-term instruments and AAA rated bonds. The allocation to below AAA-rated interments has been pegged below 10 per cent.
The fund has witnessed one of the highest inflows in recent times, thus making it the biggest fund in the category (Rs 2728.84 crore as on July 31, 2004). But this has also led to a higher cash pile-up in the portfolio – average 40 per cent in the past one-year. Still, the fund's return has hardly been affected. Its mean monthly return of 0.40 per cent is superior to the category average return of 0.37 per cent.
Though the expense ratio of 1 per cent is on the higher side in the category but the returns are better than most of its peers. Those afraid of rising interest rate and want stable returns from their investments would find this fund amicable.
This article was originally published on August 24, 2004.
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