If you are looking for exposure to high growth companies across the large and mid-cap segments in select sectors that could sail fast in an upturn, then you can consider phased investments in the Franklin India High Growth Companies Fund.
What are high growth companies?
High growth companies are typically those companies which have expanded their sales, as well as earnings, at a much higher rate than that of the general economy. Because these companies tend to grow earnings at a fast pace, they typically have higher valuations (P/E- Price to earnings ratio).
Franklin India High Growth Companies Fund will focus on companies offering the best trade-offs between growth, risk, and valuation. It will follow an active investment strategy, and will focus on rapid growth companies which will be selected based on growth measures such as enterprise value, growth rate, price earnings growth(PEG), forward price to sales, and discounted Earnings Per Share (EPS).
Suitability
Franklin India High Growth Companies Fund is a good fit for a risk-taking investor’s core portfolio. The fund is suitable if you prefer growth-orientated style of investing across market cap segments, with an investment horizon of above 5 years.
It is suitable if you wish to take advantage of India’s longer-term growth potential, but are willing to stay put during periods of short-term volatility. However, if you cannot stomach risks, this fund may not be apt for you.
For instance, in the 2008 downturn, the fund fell as much as 58 per cent, even as the bellwether index – the Sensex, slid 52 per cent. While the fund did bounce back in style the following year with a return of 99 per cent, the fall could have panicked many into stopping SIPs, an act that should be avoided at all times.
Performance
Franklin India High Growth Companies Fund’s one-year returns, rolled every day since its launch, suggests that the fund beat its benchmark 78 per cent of the times. On a three-year daily rolling returns basis, it outperformed the index 100 per cent of the times. That is a sound record. The fund delivered around 20 per cent annually over the last five years.
Just to give you an idea of the kind of returns that a Systematic Investment Plan (SIP) in the fund can deliver, especially if you hold your investments through down markets, sample this: Had you started a Rs. 10,000-a-month SIP in the Franklin India High Growth Companies Fund at inception, you would have a handsome Rs. 23.7 lakh today. That’s an Internal Rate of Return (IRR) of 24 per cent. The benchmark, CNX 500, delivered just 13.6 per cent through SIPs. This fund is, therefore, a ripe candidate to buy through the SIP route.
Its risk-adjusted return measure (Sharpe ratio) is also higher when compared with its peer group. On a risk-adjusted basis, Franklin India High Growth Companies Fund scores better than most large-cap peers, but lags behind mid-cap funds. But that is only to be expected as it is not a pure mid-cap fund.
Portfolio
The fund managers seeks to invest in companies with sustainable competitive advantages – proprietary intellectual property, strong management, distribution/cost advantages, or entry barriers that are specific to the respective sector.
Franklin India High Growth Companies Fund also dynamically manages its market cap allocation based on market conditions. The graph below is suggestive of how the fund increased mid-cap allocation between 2010 and 2011 when valuations were attractive.
As of February 2015, 62 per cent of the fund’s total equity holdings were in large-cap stocks, 22 per cent in mid-cap stocks, and 6 per cent in small caps respectively. The fund holds a compact portfolio of just 35 stocks over 16 different sectors. Its top 10 holdings account for 42 per cent of its portfolio. The fund has consistently adopted a buy and hold approach since inception. It also sports a low portfolio turnover ratio (just 0.61 times in last 1 year).
Like most other funds, the banking and financial sector remains the fund’s top pick. Information Technology (IT) is the second largest sector, followed by pharma, auto, and construction materials.
Axis Bank, Maruti Suzuki, SBI, Idea Cellular and TCS were some of its top picks in the large cap space. Whirlpool India, TVS Motors, Sanofi India, Bayer CropScience, and Mindtree were some of its top picks in the mid-cap space. R Janakiraman and Roshi Jain manage the fund.
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future results. To know how to read our weekly fund reviews, please click here.
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How do you compare this fund to Franklin Prima Plus or Franklin Flexi Cap? One question that I always had in my mind was that when compared to Prima Plus, High Growth fund has delivered better annual (point to point) returns in all bull run or sideways markets (sometimes difference was as much as 10-30%). In a falling market,while prima plus fell by 16%, high growth fell by 24%. Overall a much higher CAGR. So why is it that almost everybody recommended Prima Plus over high growth.
Hi Vaneet,
Mid and small cap exposure in Franklin Prima plus and Flexi cap is always lower compared to Franklin high growth. Prima Plus and Flexi cap are large cap oriented funds with some tactical midcap exposure.Prima Plus is having long track record of existence with greater consistency and stability. High growth is relatively new and it has an aggressively managed portfolio.If you can stomach the volatility for greater returns, then you can consider High growth.
Thanks
Sathya
If somebody has a horizon of 20+ years would it make sense to invest in this fund or HDFC Equity. Which one do you feel can deliver sound returns overall and why?
Dear Rahul,
Both the funds follow the multicap style, but HDFC Equity does not have a style mandate, it can follow value, growth or the blend of both. Even though, HDFC equity’s long-term performance is good; during 2011 to 2013, its performance was below the category average and just in line with the benchmark index.It has recovered slightly in 2014.But yet to see significant improvement in its performance.Just wait for one more year to allocate fresh investments.
In spite of the risks, growth strategy could do well in long-term. Hence, you can consider the Franklin high growth for your investment horizon.
Thanks
Sathya
Thanks Sathya for your response.
I’m invested in HDFC Equity for past 3 years. In short, do I exit from it and move to Franklin high growth. I am long-long term SIP investor. Or should I continue to hold.
Kindly suggest.
Regards,
Rahul
I’ve invested in HDFC for past 3 years. Do I continue or move to Franklin. Again my horizon is still very long term. Kindly suggest.
Regards,
Rahul
Hello Rahul,
Thank you for writing to us. Since you have a fund/portfolio specific query, advice is usually offered using your account. Kindly login to your account and use the help tab – advisor appointment to post your query. You may address it to Sathya if you wish. Else, our team of advisors will also help you. Currently, I do not see the said fund in your account and I see that your account is not fully activated. If you have completed the process with us, kindly write to us through the advisor appointment feature (with the required details on your investments, since the said investment is not with us) as we have a process in place when it comes to advice. The blog is merely a discussion forum. thanks, Vidya
Another question – what exactly is difference between your fund recommendations and your select list. Would it be safe to assume that recommendations are placed a notch higher than your select fund list (this of course may not be applicable to ‘theme’ funds).
Also while I understand that most of your recommendations are also part of select list, sometimes they are not. e.g. Franklin High Growth, Franklin Prima Plus etc. Why?
Hello,
Our select list is our a staple list of investment worthy funds. Outside of it, there could still be many others, which may fall a bit short in our criteria for various reasons or could not be accommodated because we need a cap on the no. of funds we offer in the list. So while we cover the select list in our weekly call, aside of that, we try to cover funds that were close enough to come to our select list, which may also later be candidates for the select list.
We also cover certain funds with specific risk profile and suitable only for some investors in our weekly call. They will not be part of our select list since they are not funds we would recommend to everybody.
Pl. note that the select list is the one to dip into at all times. Weekly calls, if you understand its risk profile and it fits your portfolio, you may then go for it. thanks, Vidya
L&T India value fund has given similar returns but has shorter track record. The mid and small cap exposure is higher in L&T India value fund compared to Franklin higher growth companies fund. Value fund with higher mid cap exposure or a growth fund with lesser midcap exposure is better approach in terms of risk and current valuations of the market?
We need to talk to the respective fund manager, to find out the reason behind the Midcap exposure.
What we feel is that the valuations in mid and small cap had run up a bit and many Mid and small-cap stocks valuations are at par with the large cap counterparts.That may be the reason for the lower Mid & small cap exposure in Franklin high growth companies.
Value fund does not have an option, as per fund mandate they need to find stocks at attractive valuations.PE of large caps are expensive. They need to look out for low PE stocks within the mid & small cap space.
Both funds should be part of the satellite portfolio not in a core portfolio.
Thanks. When would you be updating your select funds list?
Hi Vaneet,
We will be updating the select funds list probably next week.
Thanks
Sathya
Hi Sathyamorthy,
Saw ur comments here. liked the analysis and approach recommended. I have a query wrt Equity Mutual FUnds. Based on my research I have shortlisted four mutual funds in Multicap category viz. Franklin India High Growth Companies Fund – Direct Plan, Franklin India Prima Plus Fund – Direct Plan, ICICI Prudential Value Discovery Fund – Direct Plan and Kotak Select Focus Fund – Direct Plan.
Q1. My investment horizon is for around 3 years by which time I want to build a corpus of around 2.30 lacs. I plan to invest around Rs 4500 through SIP mode. The net returns I expect is around 40%. Am i being realistic considering the growth story India is expecting to ride in next three years.
Q2. What are the expenses and net returns achievable if I invest in the funds mentioned above?
Q2. What about the taxation aspect if i keep these funds for more than a year and then redeem the units for cash (is it tax free?). I am very apprehensive of the taxation aspect and would want tax free returns (although ok with some expense ratio of the AMC’s)
Awaiting your valuable advice.
Regards,
Ashay Gaur
Hello Ashay,
Thanks for reading our blog and writing to us. The blog is a discussion forum and we are constrained from providing any investor-specific advice here. We would be able to provide advice only if you are a FundsIndia account holder. You seem to be going the direct way. That implies that you are a do-it-yourself investor. who has sought to do away with advisory. If you would like our online services and advisory, you would be required to activate an account with us.
Vidya
Hi Sathyamorthy,
Saw ur comments here. liked the analysis and approach recommended. I have a query wrt Equity Mutual FUnds. Based on my research I have shortlisted four mutual funds in Multicap category viz. Franklin India High Growth Companies Fund – Direct Plan, Franklin India Prima Plus Fund – Direct Plan, ICICI Prudential Value Discovery Fund – Direct Plan and Kotak Select Focus Fund – Direct Plan.
Q1. My investment horizon is for around 3 years by which time I want to build a corpus of around 2.30 lacs. I plan to invest around Rs 4500 through SIP mode. The net returns I expect is around 40%. Am i being realistic considering the growth story India is expecting to ride in next three years.
Q2. What are the expenses and net returns achievable if I invest in the funds mentioned above?
Q2. What about the taxation aspect if i keep these funds for more than a year and then redeem the units for cash (is it tax free?). I am very apprehensive of the taxation aspect and would want tax free returns (although ok with some expense ratio of the AMC’s)
Awaiting your valuable advice.
Regards,
Ashay Gaur
Hello Ashay,
Thanks for reading our blog and writing to us. The blog is a discussion forum and we are constrained from providing any investor-specific advice here. We would be able to provide advice only if you are a FundsIndia account holder. You seem to be going the direct way. That implies that you are a do-it-yourself investor. who has sought to do away with advisory. If you would like our online services and advisory, you would be required to activate an account with us.
Vidya
How do you compare this fund to Franklin Prima Plus or Franklin Flexi Cap? One question that I always had in my mind was that when compared to Prima Plus, High Growth fund has delivered better annual (point to point) returns in all bull run or sideways markets (sometimes difference was as much as 10-30%). In a falling market,while prima plus fell by 16%, high growth fell by 24%. Overall a much higher CAGR. So why is it that almost everybody recommended Prima Plus over high growth.
Hi Vaneet,
Mid and small cap exposure in Franklin Prima plus and Flexi cap is always lower compared to Franklin high growth. Prima Plus and Flexi cap are large cap oriented funds with some tactical midcap exposure.Prima Plus is having long track record of existence with greater consistency and stability. High growth is relatively new and it has an aggressively managed portfolio.If you can stomach the volatility for greater returns, then you can consider High growth.
Thanks
Sathya
If somebody has a horizon of 20+ years would it make sense to invest in this fund or HDFC Equity. Which one do you feel can deliver sound returns overall and why?
Dear Rahul,
Both the funds follow the multicap style, but HDFC Equity does not have a style mandate, it can follow value, growth or the blend of both. Even though, HDFC equity’s long-term performance is good; during 2011 to 2013, its performance was below the category average and just in line with the benchmark index.It has recovered slightly in 2014.But yet to see significant improvement in its performance.Just wait for one more year to allocate fresh investments.
In spite of the risks, growth strategy could do well in long-term. Hence, you can consider the Franklin high growth for your investment horizon.
Thanks
Sathya
I’ve invested in HDFC for past 3 years. Do I continue or move to Franklin. Again my horizon is still very long term. Kindly suggest.
Regards,
Rahul
Hello Rahul,
Thank you for writing to us. Since you have a fund/portfolio specific query, advice is usually offered using your account. Kindly login to your account and use the help tab – advisor appointment to post your query. You may address it to Sathya if you wish. Else, our team of advisors will also help you. Currently, I do not see the said fund in your account and I see that your account is not fully activated. If you have completed the process with us, kindly write to us through the advisor appointment feature (with the required details on your investments, since the said investment is not with us) as we have a process in place when it comes to advice. The blog is merely a discussion forum. thanks, Vidya
Thanks Sathya for your response.
I’m invested in HDFC Equity for past 3 years. In short, do I exit from it and move to Franklin high growth. I am long-long term SIP investor. Or should I continue to hold.
Kindly suggest.
Regards,
Rahul
Thanks. When would you be updating your select funds list?
Hi Vaneet,
We will be updating the select funds list probably next week.
Thanks
Sathya
L&T India value fund has given similar returns but has shorter track record. The mid and small cap exposure is higher in L&T India value fund compared to Franklin higher growth companies fund. Value fund with higher mid cap exposure or a growth fund with lesser midcap exposure is better approach in terms of risk and current valuations of the market?
We need to talk to the respective fund manager, to find out the reason behind the Midcap exposure.
What we feel is that the valuations in mid and small cap had run up a bit and many Mid and small-cap stocks valuations are at par with the large cap counterparts.That may be the reason for the lower Mid & small cap exposure in Franklin high growth companies.
Value fund does not have an option, as per fund mandate they need to find stocks at attractive valuations.PE of large caps are expensive. They need to look out for low PE stocks within the mid & small cap space.
Both funds should be part of the satellite portfolio not in a core portfolio.
Another question – what exactly is difference between your fund recommendations and your select list. Would it be safe to assume that recommendations are placed a notch higher than your select fund list (this of course may not be applicable to ‘theme’ funds).
Also while I understand that most of your recommendations are also part of select list, sometimes they are not. e.g. Franklin High Growth, Franklin Prima Plus etc. Why?
Hello,
Our select list is our a staple list of investment worthy funds. Outside of it, there could still be many others, which may fall a bit short in our criteria for various reasons or could not be accommodated because we need a cap on the no. of funds we offer in the list. So while we cover the select list in our weekly call, aside of that, we try to cover funds that were close enough to come to our select list, which may also later be candidates for the select list.
We also cover certain funds with specific risk profile and suitable only for some investors in our weekly call. They will not be part of our select list since they are not funds we would recommend to everybody.
Pl. note that the select list is the one to dip into at all times. Weekly calls, if you understand its risk profile and it fits your portfolio, you may then go for it. thanks, Vidya