JANUARY 2014
F R A N K L I N T E M P L E T O N A S S E T M A N A G E M E N T ( I N D I A ) P V T . L T D .
Dear Investor,
Firstly, I take this opportunity to wish each one of you a prosperous 2014 and present the latest issue of Investor Insights. 2013 was the year of fixed income unlike 2012 which saw a run up in equities. The industry’s average assets under management (AUM) touched an all-time high of INR
8.77 lac crore in December 2013 – a 11% growth over last year, thanks to the large inflows seen in debt oriented funds. However, I would like to highlight what many of you may have missed. While domestic equity returns may have been muted, this was not the case with international equity funds. FT India Feeder-Franklin U.S. Opportunities Fund clearly benefited from signs of revival in the US market as well as the weakening of the INR. Hence it is rightly said ‘better late than never’ to prudently diversify your portfolio across domestic and international equity funds rather than only the former.
The year gone by was also an important milestone for us and culminated with 2 big events, one, the completion of two decades of Franklin India
Bluechip Fund (FIBCF) and Franklin India Prima Fund (FIPF) and two, the launch of our online Franklin Templeton Academy (FTA). FIBCF and FIPF were launched in December 1993 after the mutual fund industry was thrown open to the private sector. Each follows a different and non-overlapping mandate. FIBCF focuses on large caps while FIPF focuses on the mid and small cap space.
Close to 8000 of our investors have remained invested through this 20 year period and benefitted from this fantastic wealth creation story. What led to this satisfying experience despite interim turbulent phases was the fact that they invested for long and believed in the capabilities of our fund managers without getting perturbed by mood swings of the markets. You will agree with me that this story of two decades and two products emphatically proves that equities create long term wealth despite market cycles.
As an investment manager, we have brought in global best practices as part of a company that has been managing money for seven decades across developed, emerging and frontier markets. We believe we have accumulated an understanding of the investment principles, process and research capabilities that go behind long term performance. You too have reposed faith in us because we have endeavoured to do exactly what we have articulated.
To scale up our investor education initiatives and reach out to a wider audience across linguistic backgrounds, we have launched the online version of our Franklin Templeton Academy. You can conveniently access the first set of 22 modules (videos) across any of the 5 languages (English,
Hindi, Tamil, Gujrati, Bengali) through your computer, smart phones or tablets. The access to the videos is totally free.
2014 comes with a lot of anticipation and expectations especially with
India’s general elections round the corner. A stable government at the centre would provide the much needed fillip to take the reforms agenda forward and bring the country back on the path of high growth.
Hope you find our newsletter informative. Your feedback is important for us to continuously improve the way we communicate with you. Once again, wish you a great 2014 ahead!
Warm Regards,
Harshendu Bindal
President
* Please refer to the last page for product labeling and risk factors
Ankur and Shreyan were eagerly looking forward to meeting each other at the college alumni meet. They were close friends in college and continued to remain in touch but were hardly able to meet owing to personal and professional commitments. Both had a well settled career and family but were anxious to catch up on each other’s life so far as well as discuss future plans. Finally the D-Day arrived and a crowd of about 50 gathered at a city hotel in Bangalore – this was the batch of 1993 engineers many of whom went ahead to become post graduates in engineering and/or management. The first few minutes went in recognizing faces and exchanging pleasantries as much had changed over two decades. Ankur and Shreyan hugged each other turning nostalgic before settling in a corner of the hall to have a heart to heart chat.
Ankur was settled in Delhi while Shreyan was based out of Bangalore. Both worked with IT companies at senior levels. Initially they discussed their families especially their kids, their schooling etc. and later touched upon college days talking about their professors, the hostel warden, the canteen, their friends group and the night outs during exams. They digressed for a while catching up with other batch mates and professors as well as current students. This was followed by an entertainment program and then dinner. While having dinner Ankur broached upon a more serious topic – their future plans and mainly their personal life goals like higher studies for their kids, their marriage plans as well as their own retirement. Shreyan started off very confidently stating that he had engaged a certified financial planner for several years now and was well on track for all his personal life goals. Thanks to his father who had passed the message of saving ever since he had started working.
In the initial years, a small part of his salary was saved but the most important thing he learnt from his Dad was investing for the long haul. His father used to say, “Only spend what is left after saving rather than the other way round.” On advantages of long term investing, his Dad’s quote was “Investments are like formal education. You become a graduate only after spending 15-18 years in school and college and a good job is a certainty if you graduate from institutes of repute.” Likewise, you can achieve a life goal if you invest in mutual fund schemes of premier fund houses over longer time frames through professional financial advisors.
At an early age he started investing some part of his salary in IPOs and equities of branded and popular companies with a strong track record. He has also been investing in mutual funds for over 15 years now. He was well insured for self and family through a term plan and mediclaim policies. He owned two properties in
Bangalore and one in Hyderabad all bought on loan but cleared off ever since except for one. After engaging with a financial advisor (whom he calls his ‘wealth doctor’), he felt that his approach to investing had become more professional. Most in the non-financial sector get the jitters at the thought of investing their salary in non-traditional avenues. This is particularly true especially when they get a mail from their salary team to show proof of investments before deducting income tax. They outsource this activity to all and sundry and many a times end up with illiquid and dud investments being held for years. Clearly they are mis-sold products by fly-by night advisors knowing fully well that these are the ‘last minute’ gullible investors.
As Ankur listened with rapt attention, Shreyan continued talking like a financial expert using terms like risk profiling, goal analysis, asset allocation, product selection, portfolio review, financial planning etc. Most of this was Greek and Latin to
Ankur. Shreyan finally concluded that he was well on track for his goals mainly due to his early start and right advice. As they went ahead with a second helping of dinner, it was Ankur’s turn to tell his investment story. Well, there was a catch. Ankur wasn’t as savvy as Shreyan and was only investing in Bank FDs and postal savings and knew nothing about mutual funds. He owned a house in Delhi for which he was still paying his EMI while he was insured through endowment and money back policies besides
ULIPs. The biggest flaw was that his investments were in spurts and not regular besides there were no goals assigned to any funds. He had also not availed of a medical insurance since his company provided the same. When questioned about funds for retirement, Ankur replied that he would cross the bridge when it comes.
Shreyan guessed that Ankur’s portfolio needed a massive clean-up and Ankur clearly needed the services of a professional financial advisor. As they started having desserts, other batch mates started to depart promising to be in touch but Ankur very much wanted to continue the discussion to a logical conclusion. Shreyan continued to explain how inflation impacted purchasing power and goals besides telling him why market linked investments through mutual funds were important so as to be ready for any sharp turns in life. Traditional savings have their limitations as he explained that interest rates have come down since the time they started.
For example PPF offered 12% interest p.a. till 2000 but is now offering 8.7%. This had dropped to 8% in 2011 when interest rates were lower. Although equities are riskier, S&P BSE Sensex has given almost 14% compounded annualized returns over the past 10 years. This denotes that equity investments have the potential of offering better inflation adjusted returns.
Diversifying one’s portfolio also helped as he had spread his investments across domestic and international equities, debt, gold and real estate. For example, even in 2013, his portfolio gave over 15% returns, when market sentiments and economic conditions were lackluster, mainly due to his holdings in mutual funds which invested in overseas equity which had performed well. For short term goals, he was high on debt and for long term goals he was high on equities. He had clearly benefited from playing a long and disciplined innings which had enabled his portfolio to generate consistently high returns. On insurance, Shreyan was very clear that term insurance was the best option rather than locking funds in endowment, money back plans and ULIPs reasoning that the latter combined investment and insurance.
Ankur was now locked in thought on how to straighten things. Shreyan decided to help him through his financial advisor who would touch base with Ankur to rejuvenate his portfolio. They were the last ones to leave the hall but with a commitment to talk more often on financial matters till Ankur got hooked on to the nuances he had just heard besides owning a well-oiled investment portfolio.

Ankur and Shreyan were eagerly looking forward to meeting each other at the college alumni meet. They were close friends in college and continued to remain in touch but were hardly able to meet owing to personal and professional commitments. Both had a well settled career and family but were anxious to catch up on each other’s life so far as well as discuss future plans. Finally the D-Day arrived and a crowd of about 50 gathered at a city hotel in Bangalore – this was the batch of 1993 engineers many of whom went ahead to become post graduates in engineering and/or management. The first few minutes went in recognizing faces and exchanging pleasantries as much had changed over two decades. Ankur and Shreyan hugged each other turning nostalgic before settling in a corner of the hall to have a heart to heart chat.
Ankur was settled in Delhi while Shreyan was based out of Bangalore. Both worked with IT companies at senior levels. Initially they discussed their families especially their kids, their schooling etc. and later touched upon college days talking about their professors, the hostel warden, the canteen, their friends group and the night outs during exams. They digressed for a while catching up with other batch mates and professors as well as current students. This was followed by an entertainment program and then dinner. While having dinner Ankur broached upon a more serious topic – their future plans and mainly their personal life goals like higher studies for their kids, their marriage plans as well as their own retirement. Shreyan started off very confidently stating that he had engaged a certified financial planner for several years now and was well on track for all his personal life goals. Thanks to his father who had passed the message of saving ever since he had started working.
In the initial years, a small part of his salary was saved but the most important thing he learnt from his Dad was investing for the long haul. His father used to say, “Only spend what is left after saving rather than the other way round.” On advantages of long term investing, his Dad’s quote was “Investments are like formal education. You become a graduate only after spending 15-18 years in school and college and a good job is a certainty if you graduate from institutes of repute.” Likewise, you can achieve a life goal if you invest in mutual fund schemes of premier fund houses over longer time frames through professional financial advisors.
At an early age he started investing some part of his salary in IPOs and equities of branded and popular companies with a strong track record. He has also been investing in mutual funds for over 15 years now. He was well insured for self and family through a term plan and mediclaim policies. He owned two properties in
Bangalore and one in Hyderabad all bought on loan but cleared off ever since except for one. After engaging with a financial advisor (whom he calls his ‘wealth doctor’), he felt that his approach to investing had become more professional. Most in the non-financial sector get the jitters at the thought of investing their salary in non-traditional avenues. This is particularly true especially when they get a mail from their salary team to show proof of investments before deducting income tax. They outsource this activity to all and sundry and many a times end up with illiquid and dud investments being held for years. Clearly they are mis-sold products by fly-by night advisors knowing fully well that these are the ‘last minute’ gullible investors.
As Ankur listened with rapt attention, Shreyan continued talking like a financial expert using terms like risk profiling, goal analysis, asset allocation, product selection, portfolio review, financial planning etc. Most of this was Greek and Latin to
Ankur. Shreyan finally concluded that he was well on track for his goals mainly due to his early start and right advice. As they went ahead with a second helping of dinner, it was Ankur’s turn to tell his investment story. Well, there was a catch. Ankur wasn’t as savvy as Shreyan and was only investing in Bank FDs and postal savings and knew nothing about mutual funds. He owned a house in Delhi for which he was still paying his EMI while he was insured through endowment and money back policies besides
ULIPs. The biggest flaw was that his investments were in spurts and not regular besides there were no goals assigned to any funds. He had also not availed of a medical insurance since his company provided the same. When questioned about
INVESTOR
INSIGHTS
funds for retirement, Ankur replied that he would cross the bridge when it comes.
Shreyan guessed that Ankur’s portfolio needed a massive clean-up and Ankur clearly needed the services of a professional financial advisor. As they started having desserts, other batch mates started to depart promising to be in touch but Ankur very much wanted to continue the discussion to a logical conclusion. Shreyan continued to explain how inflation impacted purchasing power and goals besides telling him why market linked investments through mutual funds were important so as to be ready for any sharp turns in life. Traditional savings have their limitations as he explained that interest rates have come down since the time they started.
For example PPF offered 12% interest p.a. till 2000 but is now offering 8.7%. This had dropped to 8% in 2011 when interest rates were lower. Although equities are riskier, S&P BSE Sensex has given almost 14% compounded annualized returns over the past 10 years. This denotes that equity investments have the potential of offering better inflation adjusted returns.
Diversifying one’s portfolio also helped as he had spread his investments across domestic and international equities, debt, gold and real estate. For example, even in 2013, his portfolio gave over 15% returns, when market sentiments and economic conditions were lackluster, mainly due to his holdings in mutual funds which invested in overseas equity which had performed well. For short term goals, he was high on debt and for long term goals he was high on equities. He had clearly benefited from playing a long and disciplined innings which had enabled his portfolio to generate consistently high returns. On insurance, Shreyan was very clear that term insurance was the best option rather than locking funds in endowment, money back plans and ULIPs reasoning that the latter combined investment and insurance.
Ankur was now locked in thought on how to straighten things. Shreyan decided to help him through his financial advisor who would touch base with Ankur to rejuvenate his portfolio. They were the last ones to leave the hall but with a commitment to talk more often on financial matters till Ankur got hooked on to the nuances he had just heard besides owning a well-oiled investment portfolio.
1. What is the best way to save taxes via mutual funds?
a. Different mutual fund categories and options provide tax benefit in a different way. The most common benefit availed is under section 80C of Income Tax
Act, 1961 provided by Equity Linked Savings Schemes (ELSS). Contributions to ELSS schemes are subject to a lock-in for 3 years and investment in a financial year upto INR 1 lac by eligible investors would be eligible for deduction under the section 80C.
On the capital gains front, equity funds provide the maximum benefit as all units held for over one year have nil long term capital gains tax while those with a less than one year holding are taxed @ 15% short term capital gains tax. Further, dividends declared by equity funds are completely tax free. In case of debt funds, one can gain tax efficiencies by claiming indexation benefits if units are held for more than one year. Indexation only taxes those gains that are net of inflation. Tax is applied on capital gains @10% if no indexation is applied and @20% if indexation is applied. Investors benefit from indexation if the inflation rate is high (like in the current scenario) by paying a marginal amount as tax.
2. I have received INR 3 lac as annual bonus from my organisation, should I deploy the entire amount in equity funds?
a. No, that would not be the right approach. One must always spread equity investments across a period of time rather than investing at a single point in time to avoid timing the market. The best way would be to invest the entire proceeds in a liquid fund and then request for a Systematic Transfer Plan (STP) to an equity fund/ funds of your choice. The STP transfers a regular amount every month from the liquid fund to an equity fund. One of the equity funds can be an ELSS fund wherein you could avail tax benefit under section 80C for the forthcoming financial year. While the equity investment works like a SIP, the balance amount continues to earn a steady income from the liquid fund which is among the least risky product within the mutual funds bouquet.
3. International funds have generated superior returns in 2013 owing to the depreciation of the Indian rupee, is it the right time to make fresh investments in these funds?
a. International funds performed well mainly due to the depreciation of the INR and signs of economic recovery mainly in the developed markets. While the same situation may not necessarily repeat in the near future, one could look at international funds from a geographic diversification perspective in addition to the broader asset level diversification that one follows. Since most domestic equity funds would be equally impacted by any India specific macro-economic factor like inflation, currency, etc; funds from other geographies would be insulated from the same. One must note that international funds are impacted by currency fluctuations and benefit when the INR depreciates and vice versa. Further, pure international funds are taxed like debt funds and only those with a greater than 65% domestic equity component are treated like equity funds for tax purposes.
In this section, we present an analysis of recent regulatory changes and announcements.
Stock Exchange Infrastructure for Mutual Funds
SEBI has allowed mutual fund distributors to use the infrastructure of stock exchanges to purchase and redeem mutual fund units directly from Asset
Management Companies on behalf of their clients. AMFI registered mutual fund distributors who are permitted by the stock exchange shall be eligible to use this infrastructure.
What does this mean for you as an Investor?
This will offer investors an additional channel to access mutual funds by allowing mutual fund distributors access to the stock exchange infrastructure. A clear advantage is their sprawling reach - the BSE and NSE are spread across 2 lac terminals over 1500 locations. Mutual funds can be bought and sold through the
‘BSE StAR Mutual Fund Platform’ and ‘NEAT Mutual Fund Service System (MFSS)’ respectively. Investors would, however, need to have a demat account to access mutual funds through this route.
e-KYC service launched by UIDAI
SEBI has decided to accept e-KYC service launched by Unique Identification Authority of India (UIDAI), as a valid process for KYC verification. The information containing relevant investor details and photograph made available from UIDAI as a result of e-KYC process shall be treated as sufficient proof of identity and address of the investor. The investor would have to authorize the intermediary to access his/her data through the UIDAI system.
What does this mean for you as an Investor?
This will reduce the documentation requirement as well as turn-around time for new mutual fund investors since it will use the information that has already been submitted to UIDAI like relevant investor details and photograph.
Change in non-CTS cheque clearing frequency by RBI with effect from January 1, 2014
CTS cheques would be cleared on all working days while non-CTS cheques would be cleared every Monday, Wednesday and Friday from January 1, 2014. The frequency would reduce for non-CTS cheques to Monday and Friday from May 1 to October 31, 2014 and to every Monday from November 1, 2014.
What does this mean for you as an Investor?
There will be a delay in getting credits for non-CTS cheques due to the change in the clearing frequency from January 1, 2014. This would also impact NAV applicability on non-CTS cheque based liquid fund subscriptions and transactions valued at INR 2 lac and above for other schemes. Investors need to be aware of their cheque types – CTS or non-CTS – and accordingly check with their advisors/ distributors about any delay in applicability of NAV for non-CTS cheques.

INVESTOR
INSIGHTS
www.franklintempletonacademy.com
We are pleased to announce the online launch of Franklin Templeton Academy which is an investor education and awareness initiative by Franklin Templeton
Mutual Fund. The Franklin Templeton Academy aims to demystify the complex world of investing through interesting and engaging animated videos. These videos are divided in 3 categories, based on the level of learning one would be interested in. The online academy will not only enable you to watch the videos at your comfort, but also in a language of your choice. Here are some of the key features of the academy:
• Access the website from your home or office, from your laptop, tablet or mobile, any time you wish at www.franklintempletonacademy.com
• Receive an e-certificate from the Franklin Templeton Academy on successful completion of the quiz. However, you will need to register for this.
• You could either choose to register through a simple one time process or proceed to watch the videos directly without registering
• On completion of a program, you have an option to take a quiz to gauge your understanding of the subject
2
• Choose from 22 videos across categories like New to Investing, New to
Mutual Funds and More about Mutual Funds.
• Watch the video in a language of your choice. We currently have video options in English, Hindi, Bengali, Gujrati and Tamil.
Start off by registering on www.franklintempletonacademy.com!
Why Register: On registration, you can keep track of your learning and also save your progress. You can watch the videos and choose to take a quiz at a later date without having to watch the video again. You can receive an e-certificate post successful course completion on registration.

INVESTOR
INSIGHTS
n your everyday life, things that are important and demand immediate attention get priority over others.
Likewise, your financial goals too need prioritisation. A financial goal can be classified as short, medium or long term, according to the time period within which you need to achieve it. Goals that you want to achieve within a year are short-term, those that you want to accomplish within five years can be called medium-term or intermediate, and the ones that you plan to achieve in more than five years are long-term. Make sure that you allot your goals a target date while putting them down on paper. That’s because you would need these dates for calculating the goal’s estimated cost in the future. Before you start out, ensure that the goals are realistic and attainable, or else the entire exercise could be futile and frustrating. For instance, a Rolls Royce worth several crore of rupees may be your object of desire, but at a salary of INR 6 lac per annum, it may not be a feasible idea.
After writing down your goals, you should prioritise them. By nature, all of us have an endless wish-list. However, given our limited resources, it is difficult to provide equally for all our financial goals. Prioritising helps you allocate existing resources and channelise future investments towards a more important goal. While proper planning may fulfil all your financial goals, prioritising helps you focus on the more important financial goals at that point in time. For example, saving for retirement is definitely more important than buying a luxury car or going on an overseas vacation. Or, for instance, you might like to acquire a house in the next three years. This could mean an expense of around INR 10 lac as downpayment. Being a high priority goal that’s also nearby, your investments should ideally be focused more on it than, say, on retirement.
But, how do you prioritise you goals? In order to do so, it is important to understand the difference between your ‘needs’ and
‘wants’—it is crucial to determine which goals are important and which ones can wait. Needs—such as food, clothing and shelter—are things you must have for a healthy existence. Wants are things you would like to have, but do not necessarily need. In the context of financial planning, you must differentiate between your needs and wants. That’s because at the various stages of planning, your wants are bound to clash with your needs. In situations where your surplus is not sufficient, you will have to curb discretionary expenses, that is, expenses you can defer, reduce or eliminate.
Therefore, the basis of prioritising things primarily on the criticality of the target goal and also the nearness of that event. So, for someone with small kids, children’s needs and retirement may be equally important. In such a case, both the goals have to be adequately taken care of. However, for someone with teenage kids, children’s education or marriage attains importance over, say, retirement. Also, children’s needs are met largely around a standard age and hence, targeting them initially is imperative.
Things such as a foreign vacation or buying a second home could be postponed to a later date.
Setting goals is not a one-time exercise.
Your financial realities change with time. For instance, after your marriage, the birth of a child, a child’s marriage, or after events such as greater income from a job change, you should reset your goals. Therefore, it is important to review your financial goals periodically, preferably every year. The review process will also help you monitor your progress towards your financial objectives. If you find the progress inadequate, you could make suitable changes to the various elements of your financial plan, such as your savings, investments or your tax outgo. Clearly, setting up financial goals and working to achieve them are not the theoretical exercises they may seem at first sight. They are grounded in the reality of your financial income and expenditure. It is only by monitoring your progress towards each milestone that you can track the efficacy of your financial planning process.
Risk Factors for FT India Feeder - Franklin U.S. Opportunities Fund: Investments in overseas financial assets are subject to risks associated with currency movements, restrictions on repatriation, transaction procedures in overseas markets and country related risks. The expenses of the scheme will be over and above the expenses charged by the underlying scheme.