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Prudential ICICI Income Plan

With a defined portfolio strategy coupled with its high quality, Pru-ICICI Income Plan is well positioned to form a core bond holding.

Prudential ICICI Income Plan is a medium term debt fund launched in June 1998. The fund has given an annualised return of 12.86 per cent since launch as on September 28, 2001. Not eye-popping returns, but its stability has consistently ranked it in the medium-term bond category's top half and comes with less volatility than those of its average peer. It is also well diversified, as it owns sizable stakes in corporate bonds and an average 26 per cent allocation to government bonds.

The dividend option of the fund has paid four dividends -6 percent in September-01, 5.5 percent in Mar-01, 3.5 percent in Sep-00, 8.4 percent in Mar-00, and 10.80 percent in Jul-99. Investment in the fund carries a differential exit load based on amount and period. Redemption within 90 days and for amounts above Rs. 5 lakh 0.25 percent is charged. Redemption within 180 days of investment and for amount less than Rs. 5 lakh carries a 0.50 percent.

The fund's individual issues selection largely drives its return, as sector allocations and duration bets are strictly off-limits. The fund has maintained an average 26 allocation to government bonds, without any extreme position. The fund has also avoided elongating its maturity. The average maturity of the fund has been little less than 4-years through 2001, against elongated maturity of most peers during the period.

The fund sticks with investment-grade bonds with an average 87% of its corporate debt investment in AAA rated securities. Despite its high quality orientation, the fund is exposed to some credit risk. In fact, it ran into trouble in July 2001 with rating downgrade of IDBI. However, the fund's diversified portfolio kept the damage to a minimum, and the fund remained within striking distance of its average peer. The fund has restricted its exposure to individual corporate bond issues to 6 per cent.

Over the long term, the fund's high-quality portfolio has provided good returns without a lot of volatility. The defined portfolio strategy also contributes to a consistent performance despite its rising assets. Investors looking for a core bond holding should do well here.