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IL&FS Bond Fund

Its nimble footed and active management strategy aided by a small corpus is yet to show up in its performance figures. With a one-year return at 13.77%, the fund trails its category average

Its nimble footed and active management strategy aided by a small corpus is yet to show up in its performance figures. In its two-year's history, the fund has paid six dividends aggregating to 19% in all.

On the back of a medium sized corpus, IL&FS Bond has posted an annualised return of 12.81% since launch. 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. Since its launch, while the interest rates have been on the downhill but in a turbulent phase. IL&FS bond fund started off with a medium-term maturity portfolio in July 1999. In the turbulent markets of 2000, the fund managed its portfolio maturity in line with interest rate expectation. In the current phase of optimism, the fund is positioned at 3.94 years, which is well within limits of prudence.

With in this maturity framework, the fund has sought to augment returns by increasing allocation to Government Securities or Gilts. Gilts, which offer high liquidity and better scope for appreciation and trading profits in bullish markets, accounted for 46% in the last trailing quarter.

While allocation to Gilts has increased overtime, the fund also continues to park its money in AA and below rated instruments, in a bid to pick up yield. These instruments with their lower credit quality offer higher coupon income, and accounted for 25% of the corpus in the last trailing quarter.

IL&FS Bond fund has tried to walk the tight rope by managing interest rate and credit risks. However, the one-year return at 13.77 % from this small fund pales in comparison to its 29- fund category average of 13.97 %. Despite a nimble footed strategy, the fund is yet to show credible performance numbers.