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Perpetual Winner

IDFC Dynamic Bond Fund has been generating returns higher than the category on a regular basis

The fund is a winner. Other than 2004, it has beaten the category average every single year. Right from March 2006, the fund’s quarterly returns were ahead of the category average and its annual return in 2007 was nothing short of impressive. Thanks to its low-risk, above-average performance, it bagged a 4-star rating in July last year and has never dipped since.

The fund aims at providing an optimal return with high liquidity by moving in and out of short- and long- term debt instruments, including securitised debt. What’s interesting is that it can even maintain an exposure to foreign debt, to an extent of 50 per cent.

When Kaushal Singh took over the fund in February 2007, there was a significant change in the portfolio. He took a bold call towards the interest rate outlook and increased the allocation to long-term paper. The average maturity of the portfolio went as high as 11 years, when the category average was around 3.70.

The fund is a safe bet with a focus on high quality paper, triple A and P1+. The exception being February 2004 where the allocation to unrated paper went as high as 11 per cent. Of course it paid off in terms of returns that month.

This fund’s portfolio comprises of Triple ‘A’ and P1+ rated paper and at times the exposure to long-term government paper can go as high as 94%. Apart from the Financial Sector, there also has been some exposure to the Energy sector.

Among the diversified instruments, the portfolio includes Commercial Paper (CP) and Certificates of Deposit (CDs) issued by public and private sector banks, including foreign banks like HSBC and American Express. Securitised debt issued by National Thermal Power Corporation (NTCP) has also made appearance in its portfolio. The fund has shown traits of being a Fund of Funds (FoF) with an occasional allocation to gilt funds IDFC GSF PF and IDFC Super Saver Investment Fund.

The only concern is the expense, which is higher than the category average. Having said that, it has made an attempt to bring it down over the years.