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Cushion for Twilight Years

A good pick for those who want to build a corpus for their retirement but do not want to overly expose themselves to the uncertainties of the equity markets

This consistent performer is among the picks of the category of debt-oriented hybrid funds, and with the exemptions under section 80C which come along with it, Templeton India Pension Plan looks a very compelling option.

An erstwhile Pioneer-ITI Fund, it was later taken over by Franklin Templeton in August 2002. But that did not have any impact on its impressive performance record. Trailing five-year returns of 19.54 per cent as on May 10, 2006, which ranks it fifth out of twelve funds, is a proof of that. The consistency is visible from its calendar year performances. It has under-performed the category in only two years of the eight calendar years of its existence.

The equity portfolio is managed conservatively. Firstly, the fund sticks to its asset allocation. The exposure to equities has never gone beyond 40.32 per cent and the fund manager has been prompt in re-balancing the portfolio as and when the equity allocation seems to be crossing 40 per cent. Secondly, the fund has not traded its large-cap orientation in pursuit of flashy returns of the mid-caps. At present, 70 per cent of its equity assets are in large-cap stocks. Lastly, the equity assets of 35-40 per cent remain well spread-out across 30-35 stocks, with the top five generally accounting for not more than 15 per cent.

However, the fund had erred in timing its entry in the equities. Prior to 2000, the fund used to invest only in debt instruments. In May 2000, when it finally decided to bite the equity bait with a 14 per cent allocation, the tech collapse had just begun.

Despite that, the fund managed to deliver around 10 per cent returns as the debt markets were still performing well at that time.

On the debt side, the fund has a quality-conscious portfolio led by AAA-rated papers. The fund now abstains from investing in below AA+ which used to be a part of its portfolio in the past. The fund also avoids taking aggressive bets on the maturity. For example, when the debt markets started to turn sour in 2003, the fund was quick to reduce its average maturity below one year. Since then, the fund has gradually increased it to around two years at present.

The load structure of the fund is quite suitable. Since the objective is to build a corpus for retirement, a steep 3 per cent exit load is imposed upon redemption before attaining the age of 58 years. But the fund needs to improve upon its expense ratio. The fund is charging 2.25 per cent which is quite high for a debt-oriented fund.

To summarize, the disciplined and conservative approach to management make it a reliable vehicle for those who are looking to build wealth slowly but steadily over long term.