Smaller Companies, Bigger Returns: Investing In Franklin India

The Franklin India Smaller Companies Fund is a small-cap mutual fund scheme from Franklin Templeton Mutual Fund. It has been in existence for 11 years and 9 months, with total assets under management (AUM) of ₹14,460 crores as of September 30, 2024. The fund has delivered average annual returns of 22.94% since its inception and has an expense ratio of 0.89%. The fund's top holdings include Brigade Enterprises Ltd., Kalyan Jewellers India Ltd., and Equitas Small Finance Bank Ltd. With a consistent track record of above-average returns, the fund can be a good addition to an investment portfolio. However, investors should be aware of the risks associated with small-cap funds, which tend to experience more severe ups and downs compared to funds investing in larger companies.

Should I switch to another Franklin India fund?

The Franklin India Smaller Companies Fund is a small-cap fund that has been in existence for 11 years and 9 months. It has delivered average annual returns of 22.94% since its inception. The fund has an expense ratio of 0.89%, which is higher than what most other small-cap funds charge. The fund has generated the highest return among small-cap funds in the last three years and has doubled the money invested in it every three years. The fund's ability to deliver returns consistently is in line with most funds in its category, and its ability to control losses in a falling market is average.

The fund has a very high risk, as per SEBI's Riskometer. It has delivered negative returns over the past few years and has been a consistent underperformer. If you are looking for a small-cap fund, you may want to consider exiting this scheme and investing in other small-cap funds such as SBI Small Cap Fund or Axis Small Cap Fund. However, if you have a very long investment horizon, you may continue with the scheme.

When selling a mutual fund scheme, you are free to choose any fund house and scheme you like. You are not required to buy the next scheme from the same fund house. It is important to note that regular funds have higher expense ratios than direct funds, which lead to lower returns for investors due to the commission paid to brokers/distributors.

What are the best alternative small cap funds?

The Franklin India Smaller Companies Fund is a consistent small-cap scheme that has delivered 15.93% returns since its inception 18 years ago. While the scheme has been going through a rough patch, investors with a long investment horizon may continue with the scheme.

Quant Small Cap Fund:

• ETM Rank: Genius only
• 1-year return: +48.57%
• 3-year return: +22.07%
• 5-year return: +10.85%

Nippon India Small Cap Fund:

• ETM Rank: Genius only
• 1-year return: +37.85%
• 3-year return: +24.44%
• 5-year return: +20.85%

Bank of India Small Cap Fund:

• ETM Rank: Genius only
• 1-year return: +39.51%
• 3-year return: +24.15%
• 5-year return: +26.65%

Invesco India Smallcap Fund:

• ETM Rank: Genius only
• 1-year return: +34.52%
• 3-year return: +26.99%
• 5-year return: +28.03%

Edelweiss Small Cap Fund:

• ETM Rank: Genius only
• 1-year return: +35.52%
• 3-year return: +22.18%
• 5-year return: +26.67%

ICICI Prudential Smallcap Fund:

• ETM Rank: Genius only
• 1-year return: +30.94%
• 3-year return: +18.51%
• 5-year return: +22.50%

It is important to note that small-cap funds are ideal for investors with a long-term investment horizon of at least 5-7 years. These funds carry higher risks due to the volatile nature of small-cap companies, but they also offer the potential for high returns.

How does the fund's performance compare to its peers?

The Franklin India Smaller Companies Fund has generated the highest return among small-cap funds in the last three years. It has delivered average annual returns of 22.94% since its inception 11 years ago. The fund has doubled the money invested in it every three years. Its one-year returns are 35.85%.

The fund has an ET Money Rank of #13 of 19 and a consistency rating of 3.0. This indicates that the fund has delivered above-average returns with exceptional consistency.

The fund has a higher expense ratio than most other small-cap funds, which leads to lower returns for investors. It has a Crisil Rank of 4, down from 5 in the previous quarter.

The fund has generated better risk-adjusted returns than its peers, with a Sharpe ratio of 1.47 and a Treynor's ratio of 1.40. Its standard deviation is 6.44, and its beta is 0.77.

Compared to its peers, the fund has underperformed at beating its benchmark with a return of 6.44 vs. 7.95. It has also delivered poor risk-adjusted returns of 1.47 vs. 7.81. The fund ranks lower in terms of protecting against volatility within its category, with a volatility performance of 14.35 vs. 11.9.

What are the tax implications of selling?

The tax implications of selling your investment in the Franklin India Smaller Companies Fund depend on whether you have held the investment for more or less than a year.

If you sell your mutual fund units within a year of the date of investment, short-term capital gains tax will be applicable. The current tax rate is 20%.

If you sell after a year, long-term capital gains tax will be applicable. The current tax rate is 12.5% if your total long-term capital gains exceed 1.25 lakh in a financial year.

Additionally, if you receive dividends from your investment, they are taxed according to your income tax slab. If your dividend income exceeds Rs. 5,000 in a financial year, the fund house will also deduct a TDS (Tax Deducted at Source) of 10% before distributing the dividend.

What is the fund's asset allocation?

The Franklin India Smaller Companies Fund is an equity fund that primarily invests in small-cap companies. The fund's objective is to provide capital appreciation by investing in a diversified portfolio of small-cap stocks across various sectors and industries in India.

The fund's asset allocation strategy focuses on investing predominantly in equity and equity-related securities of small-sized companies. Typically, small-cap companies are defined as those that fall within the bottom 25% of the total market capitalisation of listed companies in India. This market capitalisation cutoff varies across sectors and industries and is subject to change over time.

As per the fund's mandate, at least 65% of its assets are invested in equity and equity-related instruments of small-cap companies. This ensures a concentrated exposure to the targeted segment

Frequently asked questions