Franklin India Arbitrage Fund – Detailed Information
The Franklin India Arbitrage Fund is an open-ended hybrid mutual fund that primarily focuses on arbitrage opportunities in the Indian equity markets. Arbitrage funds are typically designed to generate returns by taking advantage of price discrepancies between the cash market and the futures market, making them less volatile and relatively safer than direct equity investments.
Fund Overview:
- Fund Name: Franklin India Arbitrage Fund
- Category: Arbitrage Fund (Hybrid)
- Fund Type: Open-ended
- Asset Class: Equity (with an emphasis on arbitrage opportunities)
- Launch Date: The fund was launched on January 5, 2006.
Investment Objective:
- The primary goal of the Franklin India Arbitrage Fund is to generate capital appreciation and income by primarily investing in equity and equity-related instruments in the cash and derivatives segments of the market.
- The fund aims to create returns by exploiting price differences between the equity spot (cash) market and the futures & options market.
Key Features:
- Fund Strategy:
- The fund engages in arbitrage strategies by buying stocks in the cash market and simultaneously selling the equivalent futures contracts (or vice versa), depending on the prevailing market conditions.
- It also invests in short-term debt instruments to balance the risk and provide liquidity.
- Risk Profile:
- The fund is considered to have a low to moderate risk since it aims to generate returns with relatively lower market volatility. The returns are often less volatile than pure equity funds, and the fund provides downside protection in bear markets by investing in arbitrage opportunities.
- Investment Horizon:
- Recommended for short-term to medium-term investment horizons, particularly for those looking for low-risk returns.
- Suitable for investors seeking a stable return with lower equity exposure.
How to Invest:
- Through Direct Investment:
- Online: You can invest in the Franklin India Arbitrage Fund directly through the Franklin Templeton website or via the Franklin India mutual fund app.
- Offline: You can also invest through physical application forms available at any Franklin Templeton office, authorized brokers, or distributors.
- Through SIP (Systematic Investment Plan):
- SIP allows investors to invest a fixed amount regularly (monthly, quarterly) in the fund, thereby averaging the purchase cost and mitigating the impact of market volatility.
- SIP is an easy and disciplined way to invest in the fund, and it is highly recommended for long-term investors who wish to take advantage of market fluctuations.
- SIP Amount: The minimum SIP amount is typically ₹500 per month, though this can vary based on the platform or distributor used.
Minimum Investment Amount:
- Lump Sum Investment:
- ₹5,000 for the first investment.
- ₹1,000 for subsequent investments.
- SIP Investment:
- ₹500 per month (minimum SIP amount).
Fund Performance:
- The performance of an arbitrage fund depends largely on the price difference between the spot and futures market, so its returns are not directly correlated to the performance of the broader stock market.
- Typically, the returns are lower than pure equity funds but can be attractive for conservative investors who want to participate in the equity market with reduced risk.
When to Invest:
- Best for Low-Volatility Periods: Investors should consider investing in the Franklin India Arbitrage Fund when they expect market volatility to be lower, as arbitrage opportunities are most effective during stable market conditions.
- Short-Term Market Fluctuations: This fund can be ideal for those looking for a place to park their money in the short term, as it provides a safer alternative to pure equity funds.
- Interest Rate Sensitivity: The fund may also benefit when interest rates are stable, as the arbitrage mechanism works better in such scenarios.
Expense Ratio:
- The expense ratio of Franklin India Arbitrage Fund is typically in the range of 0.50% – 1.00%. This ratio can vary slightly depending on market conditions and other factors.
Dividend Payout:
- The fund offers dividend payout options. The frequency of dividend distribution depends on the returns generated by the fund and the fund’s overall performance.
Taxation:
- Short-Term Capital Gains Tax (STCG):
- If units are sold within 3 years, the gains will be subject to a 15% tax (plus applicable cess).
- Long-Term Capital Gains Tax (LTCG):
- If units are held for more than 3 years, the gains will be subject to 10% tax (without indexation) if the amount exceeds ₹1 lakh in a financial year.
- Dividends:
- Dividends are taxable in the hands of the investor, and a dividend distribution tax (DDT) applies, which varies depending on the tax laws applicable at the time.
Fund Manager:
- Mr. Harish Krishnan (as of the latest update) is the lead fund manager for Franklin India Arbitrage Fund.
NAV (Net Asset Value):
- The NAV of the fund fluctuates daily based on the prices of the underlying securities, arbitrage positions, and other assets in the portfolio.
Portfolio Composition:
- Equity & Equity-Related Instruments (Cash Market): The fund holds positions in large-cap stocks, index stocks, and liquid blue-chip companies.
- Derivatives (Futures & Options): The fund takes short positions in the futures market to hedge the positions in the cash market.
- Debt Instruments: It also invests in short-term debt instruments to maintain liquidity.
Suitability:
- Conservative Investors: Ideal for investors who want to participate in equity-related markets with lower risk.
- Tax-conscious Investors: This fund could be appealing for investors looking for tax-efficient returns in the short term.
- Short-Term Investors: If you’re looking to park funds for a few months with low risk and stable returns, this fund may be suitable.
Conclusion:
The Franklin India Arbitrage Fund is a solid option for investors seeking low-risk returns with relatively stable performance, especially in volatile markets. It is a good choice for conservative investors, short-term investors, or those looking for tax-efficient returns, as well as those who want to diversify into arbitrage strategies while keeping the equity exposure moderate.
For more specific details or to get the latest updates, you can visit the Franklin Templeton website.