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Playing Safe

Sundaram Bond Saver's moderate tendencies are key to its appeal. The fund's solid record over the long haul makes it a more-than-respectable choice. Even its YTD return of 6.35% is well above the category average.

This offering's track record will make some heads turn. It has an appealing record of limited losses with respectable return. Its trailing 3-year return ranks in the top quartile vis-a-vis peers.

The fund appears to be following the philosophy of play safe than be sorry. Unlike others this fund doesn't take the fast lane to boost returns, instead it has stuck to high-quality instruments. This moderate approach may not grab headlines but it has led to solid record over the long haul -- its annual returns for consecutive three years (1998-2000) since its birth in November 1997 were in the top 30% of its category. The sole exception has been the year 2001, when its otherwise admirable record was tarnished.

Fighting shy of taking chances, this fund till April 2001 maintained an average maturity in the range of 1.7 to 2.8 years. The formula didn't work during the double rate cut of February-March 2001. To derive the maximum out of declining interest rates the fund increased its gilt allocation, but that wasn't enough to beat its peers as its portfolio comprised lower-tenure papers (between 2 and 2.83 years).

After showing restraint, soon the fund donned an aggressive look and, consequently, behaved smartly during the rate cut in October 2001. By November, the fund had stretched its average maturity to 5.68 years, which helped it to cover some ground. That couldn't prevent it from trailing over half its peers in the category.

However, its tryst with aggression has ended and the fund is back to being conservative again. During the turbulent May 2002, a reduced gilt exposure (from 40% in October 2001 to 23% in May) and lower portfolio maturity (4.2 years) helped guard returns -- it bled less than its category. With interest rates stabilising, the fund has hiked its high-quality bond exposure to 49%. And to get that extra pop, it has parked 17% of its assets into below-AAA paper.

While it may not be a top-performer, the fund's consistency could be a good trade-off, with marginal compromise on return. So, for long-term investors it is an offering to watch for.