MF QueryBoard

MF QueryBoard

Readers are requested to send only one query at a time so that more readers get a chance. Have questions relating to any aspect of personal finance. Ask DSIJ at editorial@DSIJ.in and get your queries resolved.

What is your view on Franklin India Prima Fund since it seems to be riskier as compared to its peers? Also, how is it that various rating agencies have given it better ratings?
- Pravin Mehra

Franklin India Prima Fund is one of the oldest mid-cap funds in India. As it is an old fund, it has a long track record dating back to the year 1993. However, in all the rising market phases it has performed poorly. The main focus of Franklin India Prima Fund is on quality stocks. Further, it has a focused approach that allows it to stick to its investment objective rather than investing in some unconvinced pockets of the market. This might initially look attractive in terms of returns in certain market phases but might disappoint when the market falls. And as Franklin India Prima Fund stays away from such pockets of the market, it leads to a performance drag in certain periods. Currently, the performance drag is due to the ongoing virus pandemic that came in an unexpected way and is still persistent.



The above table shows the calendar year returns of Franklin India Prima Fund as against its category. As seen, barring four years (2010, 2015, 2017 and 2019), for all the other years the fund has fetched better returns than its category. This shows that it still is a high-quality fund. Hence, do not look at it from a narrow lens by seeing how well it has done in the last one to two years. On the contrary, widen your lens to look at the fund’s portfolio holdings, its rolling returns and risk parameters.


If we look at the three-year average rolling returns, the fund has consistently performed better than its benchmark. Also, the return distribution tells you all. In more than the 30 per cent bracket, the fund did better than its benchmark. Even in less than the 0 per cent bracket, the fund did better than its benchmark. This shows that for a maximum number of times the fund gave returns above 30 per cent. Therefore, don’t just look at star ratings. In fact, you should select funds based on your risk profile and financial goals. If you are investing with a purpose of wealth creation then go ahead with investing in this fund. However, if it’s for your financial needs then you can consider investing in a multi-cap fund instead.

Is this the right time to invest a lump sum amount in small-cap funds?
- Sujoy Bhattacharya

Though small-cap funds tend to be more rewarding, they also carry the potential to destroy your wealth. Hence, it is better not to invest lump sum in small-cap funds. Even if you have a temptation to earn significant returns by investing via lump sum, control that temptation. Though many a times in our studies we have found that lump sum investment performs better than a systematic investment plan (SIP), in case of small-cap funds, investing in a staggered manner is recommended. If you have lump sum to invest, then you can very well park it in a liquid fund and start a monthly systematic transfer plan (STP) to small-cap funds.

For example, let us assume that you have Rs6 lakhs to invest and you want to invest now. Further, you have also shortlisted the small-cap fund, still it would be better to divide that money and invest every month for six months. That said, by adopting this method you might win some and lose some, but it will give you peace of mind. The problem with investing via lump sum is that if you face a 20 per cent decline immediately after you have invested, you would end up being anxious and pull out your money to never invest again. This is a human tendency.

That is why choosing the best fund or the best sector or the best stocks or whether the fund is a small-cap or a mid-cap fund doesn’t define the major part of your investment success. Investment success mainly depends on how you act in the worst of times and the best of times. Being humans, our behaviour would be very natural. And we would have emotions of getting fearful or getting greedy at different junctures. Hence, you will have to devise a system to deal with your financial behaviour. Averaging your investments methodically via SIP is the simplest way to do it.

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