Franklin Templeton launches first floating rate income fund

Our Markets Bureau

Mumbai, Jan 7: Franklin Templeton Asset Management (India) on Monday announced the launch of India’s first floating rate income fund.

Franklin Templeton manages Rs 3,667 crore worth assets as on December 31, 2001. It offers 10 funds and has presence in 11 cities in the country.

The Templeton Floating Rate Income Fund (TFRIF) is an open-ended income scheme which will primarily invest in floating rate debt instruments.

The objective of the fund is to provide a regular stream of income, while minimising the risk arising from interest rate fluctuations.
The initial offer would open on January 21 and close on February 2, 2001. The scheme would reopen on February 18.

It offers one short-term plan and one long-term plan. The short-term plan is ideal for investors with investment horizons between one to six months. The long-term plan is ideal for medium- to long-term investors with low risk appetite, aspiring for returns in line with the market interest rates.

As the scheme targets a minimum amount of Rs 1 crore (which, it says, would be raised during the initial public offering), the minimum subscription under the short-term plan is Rs 1,00,000 and that under the long-term plan is Rs 2,000. Thereafter, one can subscribe to any amount.

Mr Rajiv Vij, regional head — India and Middle-East, Templeton AM(I), said: “TFRIF is a great option for the first time mutual fund investors as it can help minimise interest rate risk”.

This is possible as returns of the fund are linked to the current yields on debt instruments and hence are not as volatile as yields of fixed coupon instruments.

In the case of floating rate instruments the interest rate is reset periodically in line with the market interest rates.

The returns of the floating rate fund are linked to the current yields on debt instruments and hence are not as volatile as other debt funds. Also, unlike fixed deposits the returns from fund will go up or down based on prevailing interest rates, consistently keeping investors hedged against inflation.

The primary objective of the scheme is to provide income consistent with the prudent risk from portfolio comprising substantially floating rate debt instruments, fixed rate debt instruments, fixed rate debt instruments swapped for floating rate returns and also fixed rate instruments and money market instruments.

The scheme shall substantially invest in money market instruments such as money at call, Mibor-linked debt instruments, floating rate commercial papers, certificates of deposits, floating rate bonds of less than 182 days to maturity.

Among long-term instruments, the scheme will invest in floating rate bonds and debentures issued by corporates or public sector units, floating rate gilts, fixed rate debentures with swap with any other instruments as permitted by the Reserve Bank of India and the Securities and Exchange Board of India.

TRFIF will invest normally up to 35 per cent in fixed rate debt instrument and 65-100 per cent in floating rate debt instruments.