Fund manager Nilesh Shah doesn't relish huge interest rate bets. He much rather keep a close tab on total return. Looking at the performance card of Templeton India Income one can figure that Shah has stuck to his task -- all its annual returns rank in the top 50% of the intermediate-term bond fund category. All this asserts the fact that the fund is stable as far as returns are concerned.
With a consistent run of success, the fund's relatively conservative approach has worked in its favour. That it isn't afraid to take credit risk is proved by the fact that in the trailing one year Templeton India Income has sought 20% exposure to AA and below-investment grade bonds.
However, fund manager Shah has shown restraint in taking duration bets. Instead, he has successfully moved around his assets among AAA bonds and gilts. For example, during the rate cuts of 2001, the fund stretched its maturity profile by increasing its gilt allocation. Although the fund's maturity vis-à-vis its peers ranged relatively narrowly (between 3.75 and 5.41 years) in 2001, it was enough to generate decent returns.
Initially, what gave a boost to Templeton India Income's performance were below AAA holdings. These bonds, which offered high coupon, weren't affected by interest rate changes as the fund held them till maturity. But, in 1999, for reasons of safety, the fund increased its exposure to high-quality bonds. In spite of that the fund managed to clock decent returns in 1999 as well as 2000. Also, its low maturity made the fund less volatile.
But if one looks at this formidable fund's year-to-date return through June 19, 2002, not many would be impressed despite the fact that it has done far better than its average peer would have over the stretch.
Currently, the fund dons a more diversified garb, with its portfolio spread across 70 bond and gilt holdings. Today, Templeton India Income has acquired a respectable size: Rs 1,982 crore as on May 31, 2002. Moreover, with interest rates having bottomed out, and no rate cuts in sight, the fund has rightly reduced its average maturity to 4.59 years.
Overall, long-term investors looking for a stable and diversified bond offering should certainly look at this fund.
This article was originally published on June 25, 2002.
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