Investors may encounter slight hiccups in returns but the fund’s ability to bounce back has paid off over the long run. It has been a top quartile performer in five out of around seven years of its existence.
The fund manager actively manages the debt portfolio as per the interest rate scenario and takes opportunistic bets whenever he sees one. He does not hesitate in taking higher maturity bets. For example, the fund moved up the average maturity of its debt portfolio from mid 2008 while the 10-year benchmark yield was rising. From an average maturity of 1.27 years (June 2008) it went to 10.24 years (December 2008). As the yield came down in the last quarter, the fund delivered 14.62 per cent in that period (category average: 1.47%).
But if the bets go wrong, the outcome works accordingly. In the first quarter of 2009, the fund manager wasn’t quick enough to lower the portfolio maturity when the 10-year benchmark yield again started moving up. The fund lost 2.84 per cent that quarter (category average: 0.21%).
Similarly, in the March 2008 quarter the fund manager increased the portfolio maturity to 7.99 years (March 2008). But with no rate cut, the move backfired and it lost 6.21 per cent (category average: -3.89%). Currently the average maturity of the fund’s portfolio at 2.44 years is on the higher side.
Though the fund largely sports high rated papers, there has been lower quality occasionally to boost returns. In January 2009 real estate companies like Unitech and Sobha Developers accounted for 18 per cent of the portfolio.
A similar aggressive approach is seen in the equity portion which has averaged at 16.23 per cent since launch. His bold moves into mid- and small-caps are what helped the fund deliver 21.17 per cent in 2009. The fund manager, however, does attempt to diversify the risk with a bloated portfolio of 52 stocks. The latter is also the result of tremendous inflows into the fund. From Rs156 crore (March 2009) it has grown into Rs8,322 crore (December 2010).
This has resulted in a downward revision of the expense ratio of the fund which is now 1.55 per cent (September 2010) and is on the lower side in its category.
The fund is pretty regular in its dividend payments and has managed to pay dividends in 74 out of the total 85 months. However, it’s only natural to expect the quantum of dividend to vary.