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A Star-Studded Family

In a house where fund managers eat their own cooking, the broth can hardly get spoiled

Franklin Templeton is arguably the most evolved and best managed fund house in the country. It boasts of a star performer in virtually every mutual fund category. The fund house draws its strength from the best and the most experienced fund managers in the country. To add on to it, continuity of these fund managers through three ownership changes over more than 12 years is impressive. Today, Franklin Templeton Mutual Fund is one of the five largest fund houses in India, managing assets worth Rs 17,826 crore. Of this, 63 per cent, or Rs 11,201 crore, are equity assets.

Background
Templeton Asset Management, the investment manager for Templeton Mutual Fund, kicked off its Indian fund operations way back in 1996 by launching Templeton India Growth fund, a diversified equity fund. In the next few years it extended its product line by launching an income fund (Templeton India Income), a liquid fund (Templeton India Liquid) and a government securities fund (Templeton India Government Securities Fund).

The defining moment in the AMC's history came in March 2002 when it decided to acquire Pioneer-ITI. Back then, many dubbed the acquisition as expensive. However, the fund house knew what it was doing. The acquisition gave Templeton a product basket, which had some of the oldest and best equity mutual funds in the country. Funds like Bluechip, Prima, Prima Plus, Taxshield, Pension Plan, FT India Balanced etc - which make the fund house look like a star in the Indian mutual fund industry - were actually Pioneer-ITI funds. In fact, today, the erstwhile Pioneer-ITI funds form over 53 per cent of the total assets of Franklin Mutual Fund.

The acquisition also brought Templeton a vast pool of retail investors and assets. An addition of Rs 4,022 crore took Templeton AMC's total AUM to nearly Rs 8,000 crore, making it the largest AMC at the time. Templeton also acquired the registrar operations of Pioneer. This gave it an in-house ability to service investors, while keeping an eye on the quality of service. At the same time, as funds are allowed to charge for the registrar function this was an attractive business in its own right. In 2003, this business was hived off into a separate entity as Franklin Templeton International Services.

Probably the most crucial aspect of the takeover was the way the merger was handled. Not a single equity fund manager of erstwhile Pioneer-ITI left the new organisation and many continue to manage their funds even today. The fact that the AMC's CEO Ravi Mehrotra, who left the fund house recently, too belonged to Pioneer-ITI is proof that this was a genuine merger of two companies.

Today, Franklin Templeton has evolved as a complete fund house. The AMC's innovations include India's first infotech fund, only private sector pension scheme and the Templeton Floating Rate Income Fund, the first floating rate income fund to be launched in India. Templeton has also been the first AMC to launch institutional plans on the debt side. These schemes are meant for big-ticket investors and pass on the lower cost of mobilising funds in the form of lower expenses.

Recent Developments The fund house has seen two highly successful new fund offers in the last one year. Launched in February 2005, Franklin India Flexicap collected a massive Rs 1,950 crore, thus becoming India's largest open-ended equity fund then from day one. Though the IPO party has been on, Franklin Flexicap's success was exceptional. Clearly, investor confidence in the fund house forced them to open their wallets for Flexicap in a big way. So far, the fund has performed well.

The fund house had another success in December last year when Franklin India Smaller Companies Fund collected Rs 1,200 crore. Like Flexicap, which is almost similar to Franklin India Prima Plus, this fund too can be assumed to be running on lines of Franklin's yet another star performer Franklin India Prima. The only difference is that Franklin India Smaller Companies Fund was launched as a close-end fund. However, it's hardly a close-end scheme. You can exit the fund anytime by paying exit loads which drop with time. The AMC says liquidity options are provided for investors who might need money for any urgent requirement and the exit charges will help protect the interests of existing investors.

Another significant development has been shutting the doors of the AMC's Prima fund. Effective February 4, 2006, the fund house said it won't accept any lump sum investment in its Prima fund. It's a positive development for existing investors. Throughout the world, many mid- and small-cap funds refuse inflows when they find it difficult to invest further given the low liquidity of such stocks. However, the fund will continue accepting money through the SIP route. Given the huge size of Prima, a complete closure could have been a more desirable step.

Final Words
Franklin Templeton has no match today. Good funds and brilliant managers ensure safety and return for you. Some of its equity funds have attained iconic status. Often, they act as a benchmark to compare funds. Franklin Templeton is one of the few fund houses where the fund managers are encouraged to eat their own cooking. Here, the investment team's compensation is structured to reward long-term performance and part of it is given in the form of locked-in units of the various funds under management. The fund house has a bright future ahead.