A year after Rahul Goswami joined Franklin Templeton India Asset Management Company (AMC), the firm is making a notable comeback in the fixed-income space. Goswami, the Chief Investment Officer (CIO) of India Fixed Income at Franklin Templeton, has led the rejuvenation of the debt fund segment, marking the first significant move since the firm’s abrupt closure of six debt schemes in April 2020.
Revival of Debt Funds
On August 19, 2024, Franklin Templeton launched its first debt fund post-crisis, the Franklin India Ultra Short Duration Fund. This marks a crucial step for the firm after it was forced to wind up six debt schemes in 2020 due to a liquidity crisis caused by the COVID-19 pandemic. The new fund aims to capitalize on short and medium-term opportunities in the interest rate curve, which Goswami identifies as attractive on a risk-adjusted basis.
Strategic Positioning and Market Outlook
Franklin Templeton is optimistic about the current macroeconomic conditions, seeing a balanced progression in inflation and growth. The Reserve Bank of India (RBI) is expected to maintain sustainable price stability, with inflation gradually moving toward the target. Despite the Federal Reserve’s actions in the US, the RBI is likely to monitor domestic cues before making any rate cuts, according to economists.
Goswami expressed confidence in the Indian economy, stating, “We believe the RBI would remain vigilant and ensure that inflation expectations do not spill over to the broader components and derail the progress made so far.” He also anticipates that the RBI may consider easing monetary policy in the first half of FY25, although he does not expect a deep rate cycle in India.
New Fund Offerings and Future Plans
In addition to the Franklin India Ultra Short Duration Fund, the AMC plans to introduce more debt funds to fill gaps in its offerings. One such fund is the Franklin India Medium to Long Duration Fund, set to launch soon. This fund will target investments in debt instruments with a Macaulay Duration of four to seven years, offering relatively high interest rate risk and moderate credit risk.
Chandni Gupta, Vice President and Portfolio Manager at Franklin Templeton India, highlighted the strategic nature of the new product, stating, “This product would be suitable for any investor looking at a slightly strategic nature of investment in the fixed-income space. It fits beautifully into that space where you can look at fixed-income funds as strategic investments.”
Important Points
- Reentry into Debt Funds: Franklin Templeton’s new debt fund marks a significant return to the fixed-income market after the 2020 crisis.
- Market Positioning: The fund house is strategically positioning its funds to capture movements in the interest rate curve, focusing on short and medium-term tenures.
- RBI’s Outlook: The RBI is expected to prioritize domestic cues and may ease monetary policy in H1 FY25, though a deep rate cycle is unlikely.
- New Offerings: The Franklin India Medium to Long Duration Fund will target high-grade, quality investment assets, providing investors with strategic opportunities in the fixed-income space.
Background: The 2020 Crisis and Recovery
The decision to launch new debt funds comes after Franklin Templeton’s controversial move in April 2020 to wind up six debt funds due to a surge in redemptions triggered by the pandemic-induced liquidity crisis. Since then, the AMC has returned Rs 27,508.14 crore to investors from these schemes, accounting for over 109% of the assets under management (AUM) at the time of closure.
The New Fund Offer (NFO) for the Franklin India Medium to Long Duration Fund is set to open on September 2 and will close on September 16. The fund will be managed by Chandni Gupta and Anuj Tagra, both Vice Presidents and Portfolio Managers at Franklin Templeton India.
Franklin Templeton’s reentry into the debt fund market signifies a strategic effort to regain investor confidence and capture lost ground in the fixed-income space, while the RBI and US Fed continue to navigate the global economic landscape.
