Tata Income (G), launched in April '97, is a medium-term debt fund. However, the fund can also have a marginal allocation to equity.
In its tenure of four years, the fund has given an annualised return of 13.64%. A large part of the returns have come with substantial investments in corporate papers of below AAA rating (60% in early 2000). Since these instruments offer a higher coupon income for their higher credit risk, the fund has chosen to take a call on credit risk rather than active interest rate management. The strategy worked in favour of the fund with the fund topping the charts till 1999 with an annualised return of 15.14%.
However, Tata Income came a cropper in 2000. With its equity investments in technology sector picked up around peak levels of March 2000, the fund was caught on the wrong foot. Thus, it returned only 7.64% against an average return of 10.89% for the debt category. In the current calendar, the fund has been an average performer with no allocation to equities. Despite the rally in the bond markets, it has remained conservative with a maturity profile of only 2.25 years and a marginal allocation to Gilts. GOI securities, which do not carry credit risk, are the most liquid instruments and hence offer a greater potential for price appreciation amidst falling interest rates. The fund only had an average 9% exposure to GOI securities in the first quarter of 2001, while it was hiked to 26% in the second quarter.
Tata Income has been a mixed bag for its investors. It has faltered twice in its investment strategy in recent times - with its equity exposure in 2000 and a conservative stance during the bull-run on bond markets. Further, its mandate to invest a small part in equities is not in line with the risk profile of a bond fund investor.