Despite a roller-coaster ride, this fund has managed to remain a permanent fixture at the top of the bond fund performance chart. Its trailing 3-year return of 14.26% as on July 23, 2002 places it among the toppers in its category. Also, the fund's annual returns lie in the best half of the category.
This fund follows a clear-cut strategy invest heavily in corporate bonds and keep the gilt allocation lower. Even during the roaring bond market when gilts were on a high, LIC Bond's portfolio was loaded with AAA bonds (an average 53% through 2001), with mere 13% gilt exposure. So, though it gained 16.2% through 2001, it wasn't the hottest fund last year.
A closer look at the maturity profile of the holdings shows that the fund believes in maintaining high maturity on an average vis-à-vis its peers. While high maturity could be an issue now considering there are no incentives -- such as rate cuts in the immediate future which could give a boost to bond funds, its growing asset base (Rs 1,384.32 crore) could be a big plus. In 2001 alone, the fund's asset base tripled, proving investors' faith in country's largest fixed income investor.
Owing to a bloated asset base and a small corporate bond market -- the fund has decided to up its gilt exposure (22% currently). It has also regained its vigor with a 7.73% gain in 2002 through July 23, 2002. That probably could be attributed to the fund picking up some below investment grade instruments. Which, obviously, means that the fund took on credit risk to earn a handsome premium. And it did make some awesome gains. However, short-term boost to returns can also play havoc with a fund's performance in the long run. Recently, its Rs 18.75- crore investment in the long-term NCD of BPL (1.35% of its portfolio) was downgraded from A- to D.
In all though the fund has done well in a variety of markets and has a solid track record for its 3-year existence. However, courting credit risk could blemish its clean performance. This fund is basically a worthy choice for investors seeking high-yield with obvious risk.
This article was originally published on July 24, 2002.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
