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Long-term Outperformer

Principal Income Short-term takes some risk, but its long term record makes the risk worth the while…

In 2008 and 2011, the fund put up an average performance. However, its long-term record puts it ahead of the majority. Over the three-year period (May 31, 2012), it is among the top five. In the March 2012 quarter it turned in a return of 2.55 per cent beating its category by a margin of 48 bps.

The fund does take some amount of risk. In fact, investment in AA and below rated paper has gone up in recent months. While nearly two-thirds of the portfolio is in AAA and P1+ rated paper, the rest is in AA and below rated securities. The average maturity of the fund’s portfolio has largely been in line with the category average and has never gone above two years. For the 16 months ended February 2011, it remained below one year and got classified in the Ultra-short-term category.

Being a relatively small fund (Rs 65 crore), it’s not surprising that the expense ratio is above that of its peers. What is surprising is that it has increased from 0.75 per cent a year ago to stand 1.15 per cent (March 2012).