FT India Dynamic PE Ratio Fund of Funds: Invest:: Business Line,

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Franklin Templeton India Dynamic Price Earnings Ratio Fund of Funds is suitable for investors looking for higher participation in the equity market during a recovery and wanting to reduce exposure to equity when valuations become expensive.

During five- and three-year periods, the fund clocked a compounded annualised return of 13.4 per cent and 11.6 per cent and bettered the Sensex by 3.5 percentage points and 6 percentage points respectively. It also comfortably outpaced its benchmark CRISIL Balanced Fund index.

Besides managing reasonable returns during rallies, Franklin Templeton India Dynamic has also contained losses during market declines, such as the one in 2008. The fund contained losses to 26 per cent in 2008 against the 52 per cent fall suffered by the Sensex.

Strategy: This fund-of-fund, which invests in Franklin India Bluechip (equity) and Templeton India Income (debt) takes sizeable exposure to large-cap equities when markets are recovering and valuations are reasonable, and ups its holding in debt when valuations are too high for comfort.

Its investment strategy is based on the weighted-average price earnings multiple of the Nifty. For instance, when the Nifty valuations are in the 20-24 price earnings (PE) band, then its equity exposure would be in the range of 30-50 per cent, with the rest parked in debt.

For more than a year now, with the Nifty PE bordering 20 times, the fund restricted its exposure to equity to less than 50 per cent of the assets. This helped it post good returns of 4 per cent in the last year, even as the Sensex declined by 5 per cent. However, the fund trailed the balanced fund category during the above period.

While the fund has, in its July factsheet, said it would look at a 50-50 allocation to its two funds, (Franklin India Bluechip and Templeton India Income), this may have changed given the dynamic market movements of the past week.

Schemes: While the equity fund that Franklin Templeton India Dynamic invests in has been among the top large-cap funds, the same is not true of its debt fund Templeton India Income.

The latter has not been an outperformer across market cycles. Although the fund reduced its average portfolio maturity profile to benefit from the currently high short-term interest rates, its three- and six-month returns have struggled to keep pace with the category average. The Fund is managed by Mr Anand Radhakrishnan