Nandkumar Surti has a simple fund management philosophy: when faced with a choice, pick both options. That's the strategy, which this fund, one of India's earliest debt schemes, has followed. Just what were these choices? As with any other debt scheme, the fund could have either invested in slightly risky but higher-income instruments. Or it could have gunned for trading profits, by betting on the direction of interest rates and altering the portfolio accordingly.
JM Income fund has done both. In its initial years it made investments in AA and associated paper. More recently it has been taking aggressive calls on the direction of interest rates. That set the trend, which has seen JM Income not only beat its category average for three straight years, but has also featured in the top quartile of its peer group. This performance has been well rewarded. The strong inflows in the recent past are proof of this.
Once sharp interest rate movements came into play, the strategy was altered. Active changes in the portfolio maturity were now in vogue. Among the first to anticipate the steep fall in interest rates in early 2001, the fund backed its forecast with decisions that saw it gain 4.47 per cent in the quarter ended March 31, 2001. As compared to this the average fund could only muster 3.61 per cent. It's been the same story in 2002: JM Income's average maturity has been higher than most of its peers. And with interest rates treading lower, the scheme's returns are well above the category average. The downside? Well, such aggressive decisions on interest rate movements make its NAV yo-yo a bit in the short run. The result is higher than average volatility.
But then, over time there have been some qualitative changes in the portfolio. For starters, the equity component is out. Then, the contribution of debt instruments rated below AAA has been reduced to 14 per cent from the level of 21 per cent in 2000. Currently, the fund is betting on a re-rating of some of its lower-rated holdings.
So what can you expect from JM Income? Simply put, a quality portfolio bundled with high interest rate sensitivity. Better be a long-term investor here, so that intermittent turbulence doesn't make you fret.