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LIC Bond

While the fund has recently changed focus towards a quality portfolio, it needs to continue pruning its AA rated allocation to mitigate concerns about credit quality

While the fund has recently changed focus towards a quality portfolio, it needs to continue pruning its AA rated allocation to mitigate concerns about credit quality. Under the dividend option of the fund has paid five dividends aggregating to 19.5 per cent.

LIC Bond , which seeks reasonable income through investment in quality debt instruments, has delivered a return of 14.51 % since launch. A part of the gains came on the back of a portfolio, which was initially predominantly invested in AA rated papers. These instruments offer higher coupon income for being lower on the credit quality ladder. However, lower rated bonds also hamper the liquidity of the portfolio.

However, with growing asset base, the fund has shifted focus to AAA rated debt instruments while AA rated debt instruments account for 27 % of the portfolio. Within AAA rated instruments, the fund has largely focussed on coupon earning from corporate debt, with a marginal allocation to government securities.

The changes in interest rates affect the performance of bond funds, moving against interest rates. This movement, in response to interest rates, is more pronounced in case of long-term instruments. While the portfolio maturity of the fund is not available for comment, the fund is likely to be at the lower end of the maturity spectrum with a predominant exposure to corporate bonds. In the last one year, the fund has gained 13.29 % against a category return of 13.66 %. For a reasonable asset base at Rs 676 crore, LIC Bond's reliance on corporate debt provides income stability to the fund. While the fund has changed tack to focus on credit quality, it has to continue pruning its AA rated allocation to mitigate concerns about credit quality.