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Still Miles To Go

In its short stay so far it has managed to outperform its category. The fund's annualised 1-month rolling return for YTD stands at 10.76%. Eight months is not a lot to go on, so, we will watch the fund's progress carefully.

Barely a few months old, this fund doesn't have long performance history for us to draw any conclusions. Pru-ICICI Short Term's mandate is the same as that of any bond fund – invest in corporate bonds, gilts and call money -- but what makes it different from is its low maturity profile, ranging between 8 months and 15 months.

Launched in October 2001, this fund outperformed the funds who came into the picture around the same time. Pru-ICICI Short Term's year-to-date returns through July 9, 2002 beat an average cash fund's return by a huge margin of 85 bps.

The start of this calendar saw huge money flow into the fund. Initially, it parked around 60% of its assets in commercial papers (CPs). With short maturity, the actively traded CPs are indeed a good choice for liquidity especially as its asset base has seen wild fluctuations in the past two months. This fund, except for a brief while in January and February this year, has stayed clear of government securities. Also, its average maturity till now has been more or less been in line with its target.

With high-quality bond issues hogging the limelight now, this fund has gradually increased its exposure to these issues to almost 46%. With its asset base doubling in the past three months, this fund has got greedy, and, hence, has started courting mid-quality issues to boost returns. Case in point: in June the exposure to these issues touched 8.13% from 5.89% in May.

So far so good. With bond funds being highly volatile now, this short-term debt fund will catch several eyes, particularly those who hate taking risks yet seek returns superior to a cash fund. However, we feel Pru-ICICI Short term Plan still has a long way to go.