IDBI PRINCIPAL Deposit Bond fund is a medium-term debt fund. The fund seeks to build a high quality income oriented and liquid portfolio. The fund available at NAV, levies an exit load of 0.5% for redemptions within 6 months.
Launched in July 2000, the fund escaped the turbulence in the debt markets on the back of interest rate on July 21, 2000. As interest rates move down, bond prices move up and so do the returns posted by the fund. Further, this gain is more pronounced in long-term instruments, especially Government Securities (G-Secs). IDBI PRINCIPAL Deposit Bond fund has in its brief period of 7 months yielded an impressive return of 10.8%.
That the fund takes a call on interest rate risk is amply clear from its predominant investments in G-Secs and Commercial papers. The triple A portfolio of the fund is highly concentrated in select instruments. However, G-Secs, being the most liquid instruments, are maximum prone to volatility in prices during interest rate changes and hence very high on interest rate risk. Nevertheless, with active portfolio management in line with the interest rate outlook, facilitated by the liquidity, the fund has logged good trading profits in its long-dated instruments. With the positive sentiment ruling in the markets, the fund stretched its maturity to 3.62 years as on December 2000, invested to the extent of 70% in Gilts and the rest in call money market.
The fund for the six months ending February 2001, returned 9.51% ranking 2nd among 33 of its category. While, it may be too early to say whether the fund will continue to be an above average performer, but the fund will yield returns with higher volatility.