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Reliance Income

It delivers what it claims - optimal returns with moderate risk. The fund doesn't outshine competition but stands out for its above average stability. But the only odd against it is historical pricing.

Reliance Income delivers what it claims – optimal returns with moderate risk. With a proactive management, it earned a handsome 15.48 percent in 2001. Even the total return in its four-year tenure is a healthy 13 percent.

This fund primarily focuses on corporate bond issues of varying quality and cautiously treads in government securities. This worked favourably for the fund till it attained the critical mass in terms of asset base. It provided the needed stable income stream. Things have changed with growth in size.

Starting as Rs 17 crore in September 1998 it remained a small fund for three years. In 2000, the assets crossed Rs 100 crore and riding the boom in bonds it currently stands at Rs 448 crore. But, the fund has seen wild swings in its asset base in recent times. And it owes it to the high volatility in government bonds and the historic pricing followed by the fund. The fund sells or redeems its units at previous day's NAV. This prompts action from big-ticket short-term investors, hunting for the little extra return.

With rising assets the fund also enhanced its overall portfolio quality. With incremental flows in AAA rated bonds and government securities, the fund has drastically reduced its allocation to AA and unrated bonds from 47 percent in March 2000 to 12 percent now. That too well justified on fundamental strength and limited credit risk.

With its government bonds allocation, it actively realigns its maturity with changes in interest rate outlook. Largely the fund takes a conservative stance. In recent volatile times for bonds, the fund has been extra cautious. This helped the fund guard its downside better than its peers on key turbulent occasions.

The fund doesn't outshine competition but stands out for its above average stability. It delivered an average return for its lower allocation to gilt. Most points stack favourably for the fund now, against the only odd -- historic pricing. Its conservative bent is more relevant now, as high volatility remains the order. As sharp price gains from bonds get difficult, its emphasis on corporate bonds should yield better returns.