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The Safe Bet

UTI Monthly Income Scheme is a fund for those who seek a low exposure to equity…

This is a safe play for those who want a low exposure to equity. Though the cap on the equity allocation is 15 per cent of the assets, the fund managers attempt to maintain the allocation within 80-100 per cent of the maximum equity exposure permitted. Within this low allocation, they further play it safe by diversifying. They ensure that they have exposure across all the sectors represented by the benchmark and mostly invest in the heavyweights, the result of which is a predominantly large-cap tilt. So while most of its peers are willing to go with a higher equity exposure and take bets in mid caps, this one plays it safe. When its assets rose over the past year, the number of stocks too increased simultaneously from 19 (January 2010) to 40 (February 2011).

On the debt side, quality is not compromised while the average maturity has fluctuated between 1.54 years and 4.06 years. Currently, it stands at 1.96 years. “The debt of the portfolio consists of papers with 1-3 years maturity and the focus is on capital preservation and generation of regular income. We invest in papers rated at AA and above,” say the fund managers.

Though the fund has an exposure to G-Secs and floating rate bonds, it has a preference towards Non-Convertible-Debentures (NCDs). Since its launch, around half of its portfolio has been in NCDs which now stand at 63 per cent.

The portfolio construction has ensured good downside protection. Of the six quarters in which its category has been in the red, the fund has outperformed in five of them. Even during its worst 1-year period (November 19, 2007 to November 18, 2008), its fall of 4.69 per cent was lower than the category average (-6.69%).

Launched in October 2002, the equity exposure was capped to 10 per cent and was only raised to 15 per cent from July 2007. Since then it has averaged around 14 per cent and never dipped below 10 per cent, even during the market meltdown of 2008. Still the fund shed just 0.37 per cent that year (category average: -3.42%). From then on, the fund began to impress by way of performance.

The fund has been consistent in its dividend payment and has done so almost every month since launch. In each of the past six months, it has distributed dividend of 0.70 per cent.

Ironically, though assets have increased from Rs137.94 crore (September 2009) to Rs708 crore (December 2010), the expense ratio has increased from 1.47 per cent to 1.80 per cent over the same period.