IL&FS Bond Fund is a medium term debt fund launched in July 1999. The fund paid four quarterly dividends aggregating to 12.85 % to date. Entry and exit is on a no load basis.
On the back of a medium sized corpus, IL&FS Bond has posted an annualised return of 11.60 % in turbulent markets. Returns posted by debt funds depend on interest rates. 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. IL&FS bond fund started off with a medium-term maturity portfolio in September 1999. With a clear signal towards lowering of interest rates in earlier 2000, the fund stretched its maturity but prudently realigned its portfolio towards the lower end, when the rates were hiked in the second half of last year. In the current phase of cautious optimism, the fund holds an average maturity of approximately 3.5 years.
Also, the fund has stayed away from credit and liquidity risk with a predominant part (about 75%) of the corpus parked in high quality instruments of AAA corporate bonds and Gilts. Here, the fund shifts preference towards gilt instruments in times of a rally and off loads them for corporate instruments otherwise. The fund has also retained exposure to AA & below and unrated papers, which chip in higher returns for being lower on the credit ladder. In January 2001, AAA and Gilts accounted for 74% of the corpus while AA and un-rated accounted for 22%.
With this investment strategy, the fund posted a return of 9.7% against a sector average of 10.40% for the one-year ending January 31, 2001. Despite a nimble footed strategy and a small corpus, the active management of IL&FS Bond has not shown up in the performance figures.