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Reliance Income is definitely not for the conservatives. High average maturity profile may enable the fund to out-perform, but it also makes it more vulnerable to interest rate risks

Reliance Income is definitely not for those who like to play it safe. Since the beginning of 2007, the fund turned quite aggressive. The average maturity of the fund's holdings has increased from 2.57 years at the end of January 2007 to as high as 9 years at the end of May 2007. Compared to the average maturity profile of less than 2 years for the category, this change in stance has made the fund more vulnerable to interest rate risks.

The repercussions of this change were sharply felt in February, when the central bank announced yet another CRR hike. The fund's returns turned negative to the tune of (-) 0.45 per cent over the month, placing it in the list of top ten underperformers of February. Investors were quick enough to spot this development. By the end of March, the fund saw a 32 per cent reduction in its assets under management.

Moreover this change in the maturity profile came at a time of uncertainty in the domestic interest rate scenario. Another aspect to watch out for is the increasing allocation to government securities. On one hand, such an allocation insulates investors from credit risk but on the other hand it will lead to higher volatility in returns. The fund has played it safe in the corporate debt market by limiting its exposure to high quality AAA rated paper.

Thankfully, the 2007 story has not been all bad. The fund has managed to recoup its losses. The fund manager's strong conviction has started paying off - the one month and three month return delivered by the fund is much higher than the category average. As a result of this, the year to date return delivered by the fund has come at par with the category average.