The 5Ps of Equity InvestingTHE FRANKLIN TEMPLETON WAY

“An investment in knowledge always pays the best interest.”-BENJAMIN FRANKLIN

The world we live in is non-stationary and non-linear and moves in an unpredictable manner and so do financial

markets. But, how does one go about investing in equity markets, especially in a difficult environment, like the

one we face right now? One may feel that being nimble-footed in tackling the vagaries of equity investing is a

good strategy, but in reality, it’s easier said than done.

Investing through equity mutual funds can be a very good option for any investor looking to invest in equities.

Mutual funds, as we all know, are professionally managed, well-diversified and cost effective; but, with over 400

equity schemes managed in the industry, it’s a tough job for any investor or advisor to choose the few schemes

that are likely to make investing in them worthwhile. The endeavour of this note is to give readers an opportunity

to understand some principles one may use, while selecting an equity mutual fund, irrespective of the financial

market condition.

We have all heard of the ‘4 Ps of Marketing’ which are the bedrock of a sound marketing strategy. Taking a cue

from them we have put together the ‘5 Ps of Equity Investing’ which can serve as a simple, but effective tool

for any equity mutual fund investor to short-list a good scheme for investing. The process hinges on 5 critical

parameters that one should look at, to help make the selection process meaningful and robust.

“Your success in investing will depend in part on your character and guts, and in part,

on your ability to realize at the height of the ebullience and the depth of despair alike

that this too shall pass.” – John Bogle, Mutual Fund Industry Pioneer.

1 PEOPLE

This refers to the fund house and its fund management team. It is an assessment of whether the investor’s

money is in good hands and can create significant level of comfort while taking the investment decisions.

Some key questions to ask:

• How stable is the fund management team?

• What is the experience of the fund management team? (across cycles, comparable mandates.)

• Does the fund manager (or the fund management team) instil a high level of confidence in their

communication?

• How stable is the firm’s ownership? Has there been a change in the firm's ownership?

• Does the firm’s management team (other than fund management) instil confidence?

Franklin Templeton India Equity TeamThe core equity team at Franklin Templeton Investments in India comes with a cumulative industry experience

of over 225 years, of which over half has been with the firm. In terms of size, we also have one of the largest

buy–side teams in the industry.

Franklin India Equity Team: Strong Intellectual Capital• Experience in managing a diverse range of portfolios across market cycles and across small, mid and large-cap stocks.

• Well-established relationships with local contacts.

• Focused on the local market while tuned in to global trends.

• Adheres consistently to investment objectives and philosophy.

• Frequent company visits and meetings with industry people to form independent views.

STEPHEN DOVER, CFAMD & CIO - International

SUKUMAR RAJAHMD & CIO – Asian Equity

22 years of industry experienceWith FT since 1994

SIVASUBRAMANIAN, KNCIO – Franklin Equity India

24 years of industry experienceWith FT since 1993

CHAKRI LOKAPRIYAPortfolio Manager

15 years of industry experienceWith FT since 2008

JANAKIRAMAN RENGARAJU, CFAPortfolio Manager & Research AnalystMedia, Telecom and Mid-cap stocks

15 years of industry experienceWith FT since 2007

HARI SHYAMSUNDERResearch Analyst

Auto and Oil & Gas5 years of industry experience

With FT since 2009

PEEYUSH MITTALResearch Analyst

Engineering and Non-Ferrous Metals6 years of industry experience

With FT since 2011

ADDITIONAL RESOURCESTrading Desk

(Prakash Natarajan and Deepak Subramani)Global Risk Management Product Management

ANAND VASUDEVANPortfolio Manager & Head of Research

Banks, Finance and Insurance15 years of industry experience

With FT since 2007

ROSHI JAIN, CFAPortfolio Manager & Research Analyst

Engineering10 years of industry experience

With FT since 2005

NEERAJ GAURH, CFAResearch Analyst

Consumer, Retail, Auto Ancillaries, Agriculture & Logistics

5 years of industry experience. With FT since 2010

AVNISH TIWARIResearch Analyst

Metals and Mining12 years of industry experience

With FT since 2012

ANAND RADHAKRISHNAN, CFAPortfolio Manager & Head of

Portfolio Analytics18 years of industry experience

With FT since 2004

ANIL PRABHUDASPortfolio Manager & Research Analyst

Hotels, Packaging & Sugar20 years of industry experience

With FT since 2003

MURALI YERRAMDedicated Portfolio Manager for Foreign

Securities & Research Analyst for InformationTechnology, Banks, Finance & Insurance

5 years of industry experience. With FT since 2007

SHALABH AGARWALResearch Analyst

Cement, Construction, Healthcare,Power & Utilities

8 years of industry experience. With FT since 2012

Franklin India Equity Team Structure:

FRANKLIN INDIA EQUITY TEAM TEMPLETON EMERGING MARKETS TEAM

F R A N K L I N T E M P L E T O N I N V E S T M E N T S

2

Templeton Emerging Markets Team: A Team Approach

A Large and Experienced Team - Templeton Emerging Markets Team is represented in 4 continents by 52

dedicated portfolio managers and analysts, with an average of 11 years in the industry and 8 years with the firm,

located across 18 offices.

Rigorous and Consistent Investment Process - A time-tested investment philosophy built upon a disciplined, yet

flexible, long-term approach to value-oriented emerging markets investing which allows Templeton to look

beyond short-term news, noise and emotion.

Peer Review Discussions - A challenging and rewarding team approach with weekly peer review meetings and

semi-annual team conferences.

PHILOSOPHY

Good fund management teams /fund managers have a distinct investment philosophy or ‘style’ of investing.

Some fund managers prefer to invest in equities with upward momentum. Others prefer to buy under-valued

equities at bargain prices. In fact, there are several different investment styles. The most common of these

are ‘Value’ and ‘Growth’. Investment styles may be periodically in and out of favour with the stock markets,

but tend to balance out over a full market cycle. Knowing a fund manager’s investment philosophy can help

understand the rationale for specific security transactions implemented by the manager over time. It can also

help put performance in bull and bear phases in context.

Some key questions to ask:

• How clearly defined is the investment philosophy?

• What are the advantages /disadvantages of this style?

• Does the philosophy inspire confidence?

Templeton Emerging Markets Team Structure:

DR. MARK MOBIUSExecutive Chairman

Templeton Emerging Markets Group

CHETAN SEHGALChief Investment Officer / India20 years of industry experience

With FT since 1995

RAJESH SEHGALSr. Executive Director / Sr. VP17 years of industry experience

With FT since 1999

VIKAS CHIRANEWALVice President / Deputy Director8 years of industry experience

With FT since 2006

Franklin Templeton Investment Philosophy: Across Value and Growth The equity fund management team at Franklin Templeton adopts an investment style that is across value and

growth, where the Franklin India Equity Team focuses on Growth and the Templeton Emerging Markets Team

focuses on Value. The focus has been on a bottom-up style of investing where emphasis is put on researching

and evaluating individual companies which display a long-term potential of wealth creation.

3 PROCESS

The process is how the philosophy is executed. Some key questions to ask:

• Is there a well laid down, comprehensive process in place?

• How much flexibility does the fund manager has in decision making, vis-à-vis the fund house?

• How are stocks researched?

• How is risk managed?

• How adequate and effective is the risk management process?

• Does the process inspire confidence?

Franklin India Equity Process

IDEA GENERATION• Depth and width of experience of the team help spot

ideas quickly

• Benefits of past mistakes - knowledge of ‘what to avoid’

• Extensive network of contacts built over 10 years of

investing in Indian equities

• Consistent philosophy with continual refinement

BUSINESS ANALYSIS• Deep understanding of businesses

• Long-term view of the business

• Ability to look beyond short-term noise

STOCK RECOMMENDATIONS• Team approach and debates

• Appropriate templates

and valuation tools

PORTFOLIO CONSTRUCTION• Time-tested approach has historically yielded consistently

superior long-term investment results

• Philosophy remains unchanged, with continual

improvement and refinement of our investment process

PORTFOLIO AND RISK MANAGEMENT• Ability to capitalize on abnormal price

movements

• Balance between excessive trading and

being passive

• Support from global risk managers

Continuous flow of new ideas

List of 300 companies,

100 core

60 companies on recommendation list

High alpha

Appropriate diversification

Medium turnover

Healthy risk-adjusted

returns

Franklin Templeton in India: Two distinct equity investing styles

Franklin India Equity Team

Focused on Growth

Templeton Emerging Markets Team

Focused on Value

4 PORTFOLIO

This refers to the portfolio put together by the fund manager.

Some key questions to ask:

• In terms of sectors /stock composition and portfolio turnover, is the portfolio true to its mandate?

• What is the concentration risk in the portfolio?

• Is there sufficient rationale for areas of concern?

Templeton Emerging Markets Process

Consider the example of Franklin India Bluechip Fund: FIBCF is a fund with an 18 year track record of investing primarily in large-cap stocks.

Does it invest only in large-cap stocks?Depending on fundamental views, we might sometimes look at mid-cap companies with a market capitalization

close to that of the large-cap ones, but the primary exposure is towards large-cap stocks. Since inception, it has

always remained true to its mandate of investing in large-cap stocks, irrespective of the market conditions. This

sets the fund apart from other funds, which may have changed their investment strategies to adapt to market

conditions.

Such a style consistency helps the investors understand the risks they

are undertaking and the possible performance characteristics of the

fund. If a fund doesn’t stay true to its investment style, investors will

not have an idea of the type of risks they are undertaking.

Period: 1 December 1993 to 30 June 2012

Source: Morningstar, from 1 December 1993 to 30 June 2012

Franklin India Bluechip Growth

BSE Sensex India

Ongoing Valuation Analysis

Disciplined Sell Methodology

Weekly Peer Review and Risk Analytics

Quantitative Analysis

Qualitative Analysis

Sector and Country Input

Initial Screening (3,000-4,000 Securities)

Global Contacts

Master List (21,000 Securities)

Investment Guidelines

Allocation Model

Diversified Portfolio

Continual Review Process

Peer Review and Analysts Sets Final Target Price

Action List Inclusion (600-800 Securities)

STEP 4Construct Portfolio

STEP 3Peer Review

STEP 2In-Depth Fundamental Analysis

STEP 1Identify Potential Bargains

STEP 5Evaluation and

Portfolio MaintenanceTE

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PERFORMANCE

Performance refers to the NAV movement of a fund. In our opinion, performance analysis can help validate

the strategy and its execution over a particular period. At another level, it can also help understand the

underlying risks (other than concentration risk) to holding the fund.

Performance Analysis to Understand Risk

Risk, by itself, can be the subject of a long and elaborate discussion. Risk can be perceived in different ways. Here are some of the ways of perceiving risk:

• Standalone volatility.

• Volatility relative to a benchmark.

• Maximum possible loss.

Depending on how one perceives risk, one could choose a measure that helps quantify the extent to which the past performance reflects that risk.

• To assess the historic standalone volatility, one could see the fund’s Standard Deviation.

• To assess the historic volatility relative to a benchmark, one could see the fund’s Beta.

• To measure the historic maximum possible loss, one could see the fund’s Maximum Drawdown.

Some things to bear in mind:

• Each measure will have its advantages and disadvantages. The choice of a measure is a very individual

choice based on one’s perception of risk and how one perceives the advantages of a measure stacked

up against its disadvantages.

• The selection of the time period, the benchmark and defining the appropriate peer group will have a

bearing on the accuracy of some of the measures.

• The results are best seen, not as individual rankings, but rather as quartiles or similar.

• If you cannot do these calculations on your own, check for research providers who can do this for you.

If you prefer readily available research, look at the methodology followed by different research providers

and select one whose methodology gives you most comfort.

5

Performance Analysis to Validate Strategy and Execution

Good performance is a reflection of good strategy and /or good execution. What constitutes ‘good performance’ is something over which opinions can vary. For most advisors and investors, the as-on-date returns form the basis of performance analysis. As illustrated earlier, such an analysis carries with it the risk of end-point-bias, i.e. the most recent performance hides the past performance. Additionally, such an analysis does not factor in the risk taken. We believe that higher returns are not possible without taking higher risk. For these reasons, we do not recommend performance analysis on this basis. Instead, we suggest measures which have relatively fewer disadvantages. Here are some of the measures that we suggest:

• Rolling Returns vis-à-vis benchmark and/or peer group funds.

• Sharpe Ratio vis-à-vis benchmark and/or peer group funds.

• Treynor Ratio vis-à-vis peer group funds.

• Alpha vis-à-vis peer group funds.

• Information Ratio vis-à-vis all funds.

WHY FRANKLIN TEMPLETON?

Franklin Templeton Worldwide:

• Premier global investment management organization with over 60 years of global investment experience

• Headquartered in San Mateo, California with offices in 30 countries worldwide

• Over 500 investment professionals managing USD 706.9 billion in assets for over 20 million investor accounts (as of 30 June 2012)

• Global research expertise of over 100 investment professionals

Franklin Templeton in India:

• Established office in 1996

• Extensive experience in both equity and debt across market cycles: 9 of our funds have a performance track record of over 10 years

• Focus on local needs backed by global expertise

Our values reflect what's most important to us as a company. They are the ideas that guide how we do business, how we treat our clients and how we work with each other. We strive to:

Put clients first

We strive to know and meet our clients’ needs, and we fully accept our fiduciary responsibility to protect the interests of our investors and stakeholders.

Build relationships

We work to establish enduring relationships with our clients and business partners. We value collaboration and co-operation in our workplaces.

Seek to achieve quality results

We value professional excellence and expertise, and we strive to produce consistent, competitive results for our clients.

Work with integrity

We speak and act in an honest manner. We believe in being accountable for the impact we have on others.

Our Core Values

Put clientsfirst

Work withintegrity

Buildrelationships

Seek to achievequality results

GLOSSARY

Alpha: Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a

benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

Asset: Any holding with monetary value such as stocks, bonds, real estate and cash.

Asset Allocation: Investment strategy that diversifies assets among stocks, bonds and money market

instruments to help reduce investment risk.

Bear Market: A period of time during which securities prices are falling in the stock market.

Beta: It shows the sensitivity of the fund to movements measured against the benchmark. A beta of more than

1 indicates an aggressive fund and the value of the fund is likely to rise or fall more than the benchmark. A beta

of less than 1 implies a defensive fund that will rise or fall less than the benchmark. A beta of 1 indicates that

the fund and the benchmark will react identically.

Blue Chip: Stock of a nationally known company that has a long record of profit, growth and dividend payment,

and a reputation for quality management, products and services.

Bottom-up Investing: In bottom-up investing, the investor focuses his or her attention on a specific company

rather than on the industry in which that company operates or on the economy as a whole.

Bull Market: A distinctive time period, during which the prices of securities are rising, usually characterized by

high trading volumes.

Equity: A type of security representing part ownership in a company or corporation. Common stocks, preferred

stock and convertible stock are types of equity securities.

Fund Manager: The person responsible for deciding which securities are to be part of the mutual fund’s portfolio.

Growth Investing: A strategy whereby an investor seeks out stocks with what they deem good growth potential.

In most cases, a growth stock is defined as a company whose earnings are expected to grow at an above-average

rate compared to its industry or the overall market.

Information Ratio: The Information ratio is a measure of the risk-adjusted return of a financial security (or asset

or portfolio). The expected active return is divided by tracking error, where active return is the difference

between the return of the security and the return of a selected benchmark index, and tracking error is the

standard deviation of the active return.

Market Risk: The potential loss that is possible as a result of short-term volatility of the stock market.

Maximum Drawdown: The percentage loss that a fund incurs from its peak NAV to its lowest NAV.

Mutual Fund: A mutual fund is an investment that pools shareholders' money and invests it toward a specified

goal. Each fund's investments are chosen and monitored by qualified professionals who use this money to create

a portfolio. That portfolio could consist of stocks, bonds, money market instruments or a combination of those.

Net Asset Value: The NAV is the market value of mutual fund shares. It is calculated each business day, based

on the value of the assets of the fund minus its liabilities, divided by the number of shares outstanding.

Scheme Information Document (SID): SID is a legal document that contains important information about

a fund's investment goals, sales charges, expenses and risks.

Franklin India Bluechip Fund:Scheme Classification and Investment Objective: An open end growth scheme with an objective primarily to provide medium to long-term capital appreciation. Load Structure: Entry Load: Nil. Exit Load: 1% if redeemed or switched-out within one year of allotment.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Performance: How a fund has done in the past and how well it is doing at present.

Price-Earnings Ratio (P/E): One of the quantitative measures used by portfolio managers to help them value

companies. It is calculated by dividing a company’s share price by its earning per share.

Rolling Returns: The annualized average return for a period ending with the listed year. Rolling returns are

useful for examining the behavior of returns for holding periods similar to those actually experienced by

investors.

Sharpe Ratio: Statistical measure of a portfolio's historic ‘risk-adjusted’ performance. Calculated by dividing a

fund's excess return by the standard deviation of those returns. As a measure of reward per unit of total risk,

the higher the ratio, the better.

Standard Deviation: A measure of deviation or historic volatility of a portfolio. It measures the dispersion of a

fund's periodic returns from its mean value. The wider the dispersion, the higher the standard deviation and

thus higher the risk. Lower standard deviation is therefore preferred.

Top-Down Investing: The top-down style of investment management places primary importance on country or

regional allocation. Top-down managers generally focus on global economic and political trends in selecting the

countries or regions where they expect to find investment opportunities.

Treynor Ratio: A ratio developed by Jack Treynor that measures returns earned in excess of that which could

have been earned on a riskless investment per each unit of market risk.

Value Investing: The investment approach which favors buying under-priced stocks that are inexpensive relative

to their intrinsic value and that may have the potential to perform well and increase in price in the future.

Franklin Templeton Asset Management (India) Pvt. Ltd.Indiabulls Finance Centre, Tower 2, 12th & 13th Floor, Senapati Bapat Marg, Elphinstone (West), Mumbai-400 013.

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