Franklin Templeton Mutual Fund Debt

Franklin Templeton Mutual Fund Debt Investment Objective

Franklin Templeton debt mutual fund strives to give investors steady income and capital safety during the short to medium term. These funds make investments in securities that produce fixed income, such as treasury bills, government securities, and other money market instruments. The fund manager will choose the debt securities based on the fund’s investment objective and underlying ratings. Over the specified investment horizon, a debt fund investor would receive returns in the form of interest income and a gradual rise in the fund value.

Risks Involved in Franklin Templeton Debt Mutual Fund 

Franklin Templeton debt mutual fund risk is minimal to moderately high. The value of the fund may fluctuate depending on the cost of the underlying debt security. Interest rates, governmental initiatives, tax regulations, and other economic changes may impact the cost of debt securities. The duration of the portfolio and the typical maturity have an impact on risk as well. Investors must be aware of their personal risk tolerance when investing in Franklin Templeton debt mutual fund.

Return Potential of Franklin Templeton Debt Mutual Fund 

Return is a byproduct of the investor’s assumed risk. Franklin Templeton debt mutual fund returns are higher than those from traditional fixed-income investments. For five years, these funds have historically been known to produce average returns of about 7%–10%. The tenure of the mutual funds and credit ratings both affect the level of returns. It must be noted that the returns are not guaranteed, and Franklin Templeton debt mutual fund performance may change over time.

Who Should Invest in Franklin Templeton Debt Mutual Fund?

Franklin Templeton debt mutual fund is appropriate for cautious investors looking for capital growth and consistent income. These funds could add stability to an equity-oriented portfolio as they are more stable than equity funds. Liquid funds are ideal for investors that want high liquidity from their investments. Franklin Templeton debt mutual fund schemes may be the most tax-efficient ones for long-term investors in higher tax bands.

Things To Consider Before Investing in Franklin Templeton Debt Mutual Fund 

Franklin Templeton debt mutual fund schemes provide simplicity, dependable income, high liquidity, minimal risk, and largely predictable returns. The benefit of indexation, which becomes accessible for debt funds after three years, enables tax-efficient investments. However, certain things must be kept in mind before investing in the Franklin Templeton debt mutual fund.

Expense Ratio

The cost ratio is the total cost of all expenses incurred during the debt fund scheme’s operation. Since debt funds have lower returns or upside potential than equity mutual funds, the expense ratio is more important.

A direct plan should be the best choice for investors with low-cost ratios. Investors can determine the returns from debt funds after considering the cost ratio.

Duration and Maturity

Franklin Templeton debt mutual fund performance is susceptible to fluctuations in the interest rate the longer the adjusted period is, and vice versa. The modified period measures how sensitive a debt fund’s price is to fluctuations in interest rates. It illustrates how rising interest rates affect Franklin Templeton’s debt mutual fund NAV. Longer-term funds are more volatile than shorter-term funds.

Yield to Maturity 

The yield to maturity of a debt fund is the anticipated return rate assuming that all of the securities in the portfolio are held until maturity. The investor would profit 9% if the portfolio remained the same until all of the holdings in the portfolio reached maturity, for instance, if the yield to maturity of a debt fund was 9%.

Interest Rates

The regime of interest rates has a significant impact on the appeal of debt funds. Bonds that are already issued are worth more in an environment with falling interest rates than bonds that were just issued. The value of previously issued bonds decreases as interest rates rise as investors prefer to invest in newly issued bonds with higher rates.

Credit Risk Portfolio

In addition to interest rate risk, debt funds are also vulnerable to credit risk. Debt securities are rated by credit rating organisations based on the issuer’s creditworthiness and repayment capacity.

The “best” and least credit-risky fixed-income investments are those rated AAA. A ‘C’ credit rating indicates that a security is likely to default.

Tax on Franklin Templeton Debt Mutual Fund 

A debt fund investment made towards different fixed-income securities has different tax implications. The tax on Franklin Templeton’s debt mutual fund is explained in the table below:

It must be noted that gains up to INR 1 lakh are tax-exempted.