My SIP's 17-year journey in Franklin India Prima Fund (FIPF)

My SIP's 17-year journey in Franklin India Prima Fund (FIPF)

Today, when the Equity Markets across the globe have crashed and the investors, especially the ones who started their Systematic Investment Plans (SIPs) in the last 5 years, and are seeing the investments in red are extremely worried.

This article is an effort to address them through a first-hand story of my SIP in Franklin India Prima Fund (FIPF).

I am going to refer to the following graphical representation of the journey in this article. This chart shows the Amount Invested (₹) (in Orange Colour) and the Value of the Investment (₹) (in Green Colour) as on a particular date on the Y axis (both Left Hand Side) and the Net Asset Value (NAV in ₹) of the Fund (in Red Colour) again on the Y axis (on the Right Hand side). The X-Axis refers to the period of my investment in the Fund.

I started this SIP on 1-Oct-2003 and the investment values are re-based to ₹ 100/- as on that date. There have been 198 months during this period from Oct-2003 to Apr-2020 and I invested in 186 out of these. There were only 3 small lump-sum investments done outside the SIP installments in these 18 years.

Transaction Listing:

• The reference to the NAVs of the Fund are done from the perspective and reference of my investments in the captioned Fund and the respective dates of investments only.
• The 1^st installment went in at the NAV of ₹ 52.79 (NAV-1 in the chart) and the market continued to rise continuously for the next four and half years with the Fund hitting the then all-time high NAV of ₹ 319.66 (NAV-2) on 31-Dec-2007, an absolute rise of 506%.
• Then came the 2008 Lehman Brothers crash and the NAV fell to ₹ 103.59 (NAV-3) on 27-Feb-2009, a crash of 68% in just under 14 months. 
• The markets rose steadily again from this bottom and the fund crossed its pre-crash high NAV of ₹ 334.2 (NAV–4) on 01-Nov-2013, an absolute rise of 223% in the next four and half years.
• This still saw the fund give virtually no returns for the period of 6 years (December-07 to November-13), highlighted by the horizontal dotted line across this period. 
• The markets then saw a sustained bull run, where the fund hit its current all-time high NAV of ₹ 1,068.09 on 1-Feb-2018 (NAV-5), an absolute return of 220% in another four and half years.
• Then came the so-called crash in Mid and Small cap stocks in 2018, where the NAV of the Fund moved down to ₹ 936.56 (NAV-6) on 3-Sep-2019, a fall of 12% (which seems so very minuscule now) in 18 months. Imagine people calling this a crash!
• The Fund regained this fall in 9 months, with the NAV reaching ₹ 1,053.59 (NAV-7) on 3-Feb-2020. (Normally, this happens the other way round - Mathematics is so funny - if your Fund falls from ₹ 100/- to ₹ 50/-, it is a 50% fall, but when it has to go up from ₹ 50/- back to ₹ 100/-, it is a 100% gain, and it should technically take more time than the fall).
• Suddenly from mid of February 2020, all hell broke loose with the COVID-19 pandemic scare and every Equity Market across the globe started crashing.
• The NAV of the Fund fell to a low of ₹ 714.88 for the SIP installment of 3-Apr-20 and has recovered slightly to ₹ 776.88 as of 9-Apr-20 (NAV-8), a fall of 26% in 2 months. 
• The fund is now trading at the NAV that it had seen last on 1-Jul-2016 of ₹ 762.41 (NAV-9), which is shown by the second horizontal dotted line on the right side of the chart. Thus, close to four and half years of returns of the Fund have been wiped out in the current fall.
• To cut the long story short, how is my investment in the Fund faring in the current fall? I am outlining three specific computations across three different time periods to explain the scenario.

Performance Analytics of my Investments:

• The first computation is shown in the table below when the Fund was at the All-time high NAV of ₹ 1,068.09 as on 1-Feb-2018:

Amount invested till this date	₹ 26,838/-
Value of investment	₹ 137,797/-
Return till date (CAGR)*	19.30% p.a.
Wealth Multiplier	5.13 times

• The second computation is shown in the table below at the point before the current crash at the NAV of ₹ 1,053.08 as on 3-Feb-2020: 

Amount invested till this date	₹ 31,438/-
Value of investment	₹ 140,813/-
Return till date (CAGR)*	15.81% p.a.
Wealth Multiplier	4.48 times

• The third computation is shown in the table below as at the NAV of ₹ 776.88 as on 9-Apr-20:

Amount invested till this date	₹ 32,038/-
Value of investment	₹ 104,252/-
Return till date (CAGR)*	12.60% p.a.
Wealth Multiplier	3.25 times

What next?

• Am I worried when my return has fallen from 19.30% p.a. to 12.60% p.a. because of this crash? A BIG NO. Why?
• Because I hope to be working for another 10 years or so (actually, my Profession does not have a Retirement date - Whiter the hair, more the respect I can command). I don’t think I am going to need this Money for the next 10 years, and I also plan to continue to invest Fund till then.
• Lower the NAV of the Fund (like in the current times), the more units I will accumulate in the Fund. e.g. If was investing ₹ 10,000/- per month in the Fund through the SIP route, I would have been allotted 9.362 units in the Fund on the all-time high NAV of ₹ 1,068.09, whereas I would have been allotted 12.872 units at the current NAV of ₹ 776.88.
• The more the units I accumulate, the lower will be my average purchase price in the Fund. Eventually when the markets go up (and they will), the units bought at lower NAV will show higher gains than the units bought at higher NAV. This is where Rupee Cost Averaging works in our favour. (Will write more on Rupee Cost Averaging and benefits of SIPs in a separate post).
• Once I stop investing, I am not going to need all the money immediately, and I will have to fund my retirement for maybe the next 30 years, assuming I live till the age of 90 and the world does not come to an end before that.
• It could so happen that I may continue to be invested in the Fund for another 25 years from now (taking me to the year 2045), and my total holding to 43 years since I started in 2003. I hope that Franklin Templeton, India continues to manage the Fund properly till then.
• Even if I make 12% p.a. from here over the next 25 years (which is my current return for the last 18 years and computed at a point when the markets have crashed 26% from the peak), I believe it will continue to create Wealth for me (I am not getting into the computation of where this amount will reach at this point here).

Moral of the Story:

• We all have Long-term goals in Life! Equity is Risky, but the Loss of Purchasing Power (read inflation) over a longer period of time is a much bigger risk. What you can get for a ₹ 1,000/- today will cost you ₹ 2,000/- in 10 years from now at the Inflation rate of 7% p.a.
• In addition to the regular Inflation that impacts our daily lives (Roti-Kapda-Makan-Bachchon ki Padhai, i.e. Food-Clothing-Housing-Children's education), we also have to account for the Lifestyle Inflation that we face in our daily lives.
• My father's life was very easy - when I asked him for an Apple, he bought me the one that costed ₹ 1 per piece. These days when my daughter asks for one, I have to ask her to as whether she's referring to the ones that come for ₹ 100 / 4 pieces or the one that would set me back by ₹ 100,000/-.
• The ultimate goal of any of your Investment instrument should be to generate a positive Real Rate of Return, i.e. Return after Inflation and Taxes which is Positive.
• Equity is the only Asset Class that beats Inflation in the long-run, and you cannot afford to not use Equity for your Long-term goals. It is also the only instrument that has more favourable tax treatment. (More about the Tax Treatment of Mutual Funds in a separate post).
• Each person has a long-term goal, any goal that is atleast 5 years away from now - e.g. for a person that is 40 years old and has one 10-year old Child, it could be the Child's education after 8 to 12 years, the Child's wedding after 17-18 years, and his own Retirement that is 20 years away. If you have 2 children, the Education and Wedding goals get repeated.
• I also highlight the concept of Inflation to every retiree that I work with. You are 60 today, but you will need money this year, next year, 5 years down the line, 10 years down the line and maybe upto 30 years down the line if you live upto 90 years. 
• Now imagine this - if you need ₹ 50,000/- per month to run your house today, you will need ₹ 1 Lakh per month in 10 years, ₹ 2 Lakh per month in 20 years and ₹ 4 Lakh per month in 30 years at an Inflation of 7% p.a.
• Therefore, the money that you need 10 to 30 years down the line can be deployed in a slightly risky asset compared to the Fixed Deposit that the Retiree wants to get into lock stock and barrel.
• However, as we are seeing in today's times, Equity Markets carry the Risk - the volatility that we are seeing today, the wild swings (downwards and upwards) which we are seeing today and have seen even in the past. 
• Hence, you need to have the Money that you need only beyond 5 years deployed in Equity. I even have had thoughts of pushing this number to 7 years or maybe 10 years or beyond looking at the Client Portfolios today.
• In addition to Equity, you need to be diversified across Asset Classes (Asset Allocation - Money spread across Financial Assets of Cash / Debt / Equity and Physical Assets like Gold and Property), and the importance of it will be known post the COVID-19 scare. 
• People may lose jobs, or face pay cuts, or the income for self-employed will come down / fluctuate. Many people are leveraged these days - Housing Loan, Car Loans, Personal Loans, etc., and even if the RBI asks the Banks to give you a repayment moratorium, you will still need to repay the EMIs eventually. In case you face a Pay Cut or lose your job, how are you going to repay the EMIs?
• If you have adequate back-up (emergency funds) available in Debt (Mutual Funds, Fixed Deposits, etc.), only then it will be possible to maintain your current lifestyle over the next few years post these challenging times.
• Having said this, my story of 17 years in Franklin India Prima Fund shows that while Equity can be risky in the short-run, it can be a great wealth creator over the long-term. I cannot think of any other Instrument that has created wealth at the return of 12.90% p.a. over the last 17 years.

Last but not the least, this money will only come handy to you if you are around to use it. Please stay at home till the Lock-down is over, please stay safe and please take good care of yourself and your loved ones. 

#Stayhome #Staysafe #MutualFundsSahiHai

Disclaimers: 

• This article depicts the journey of the Author in one of his personal investments in Franklin India Prima Fund (FIPF) (an Equity Fund that invests predominantly in Mid Cap Stocks) over the last 17 years, primarily through the Systematic Investments route.
• This article should not be construed as an Investment recommendation in Mutual Funds generally or FIPF specifically. The article has been written specifically to show the journey in different market cycles and tries to allay the fears of investors who are disturbed or can get disturbed by the volatility seen in Equity Markets during the COVID-19 scare. 
• The returns expectations outlined in the article are simply for the sake of discussion and there is no guarantee that they maybe achieved in the future.
• Equity Markets and especially Mid and Small Cap stocks carry Market risks and there is a great chance of losing a substantial part of your capital over a short period of time in these instruments. In case you are not conversant with the Equity Markets, Capital Markets or Mutual Funds, you should seek Professional help before investing your hard-earned monies.
• Last but not the least, Mutual Funds are subject to Market Risks. Please refer to the Offer Document carefully before Investing.