Franklin Templeton and Mirae Asset Launch Long Duration Funds: Is This the Right Time to Invest?

As Indian interest rates hover near their peak, Franklin Templeton Mutual Fund and Mirae Asset Mutual Fund have introduced new Long Duration Debt Funds. These offerings come at a time when investors are keenly watching for opportunities to capitalise on high yields and potential rate cuts.

Understanding Long Duration Funds

What Are Long Duration Funds?
These funds primarily invest in debt and money market instruments with a Macaulay Duration (MD) exceeding seven years. The longer maturity of underlying securities means these funds are highly sensitive to interest rate changes.

What Is Macaulay Duration?
Macaulay Duration is the weighted average time it takes for a bond’s cash flows to repay its price. It measures a bond’s sensitivity to interest rate movements: the longer the duration, the more sensitive the bond is.

Investment Objective:
The aim of Long Duration Funds is to generate income and capital appreciation through a portfolio of high-quality debt instruments, balancing yield, safety, and liquidity.

Why Now? The Interest Rate Context

India’s policy repo rate has been steady for ten consecutive bi-monthly reviews after a cumulative hike of 250 basis points (May 2022–Feb 2023). While global central banks are easing rates, India’s October 2024 inflation spiked to 6.21%, beyond the RBI’s target range. This makes rate cuts in December unlikely, but with rates expected to decline in FY2025-26, now could be an ideal time to invest in long-duration instruments.

Fund Highlights

Franklin India Long Duration Fund

• Fund Managers: Chandini Gupta and Anuj Tagra, both seasoned professionals with robust track records in fixed-income management.
• Investment Focus: Sovereign bonds, high-quality corporate debt, and money market instruments.
• Minimum Investment: Rs 5,000 (lump sum); Rs 500 (SIP).

Mirae Asset Long Duration Fund

• Fund Manager: Kruti Chheta, a fixed-income expert with over a decade of experience.
• Investment Focus: High-rated G-secs, corporate bonds, and money market instruments.
• Minimum Investment: Rs 5,000 (lump sum); Rs 99 (SIP) and in multiples of Re.1/- thereafter. 

Benchmark and Investment Strategy

Both funds will benchmark their performance against the CRISIL Long Duration Debt A-III Index, which tracks a portfolio of G-secs, AAA-rated bonds, and money market instruments.

Their strategy involves a mix of top-down (macro-environment analysis) and bottom-up (security selection) approaches to optimize risk-adjusted returns. However, risks like interest rate, credit, and liquidity remain inherent to such investments.

Who Should Invest?

• Risk Appetite: Investors comfortable with higher sensitivity to interest rate changes.
• Time Horizon: Suitable for long-term investors aiming to capitalize on high yields and potential rate declines.
• Portfolio Objective: Ideal for those looking to diversify with high-quality debt instruments.

Cautionary Notes

While both funds promise robust investment strategies, Franklin Templeton’s past missteps—abruptly shutting six debt schemes during a liquidity crunch—serve as a reminder for investors to exercise caution.

Conclusion: A Timely Opportunity

Franklin Templeton and Mirae Asset’s Long Duration Funds present a timely opportunity to lock in high yields and potential capital appreciation as interest rates peak. However, due diligence and understanding of risk factors are crucial before investing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.