Like a middle-aged person approaching his or her 50s gets mature and quiet, Templeton India Income Fund (TIIF) has sobered down a lot. While the fund has not taken aggressive calls on interest rate movements in the past one and half year, it still boasts of an above average performance.
And this performance has not been associated with much volatility. No wonder its corpus has grown to Rs 2066.23 crore making it one of the biggest medium-term bond funds in the Indian mutual fund market.
TIIF constantly strives to maintain a balance between the interest rate sensitive instruments and steady income generating corporate bonds. Besieged with rising interest rates after its launch in 1997, it bought heavily into high yielding below AAA corporate bonds. Towards 1999, as the interest rates softened, it changed tack to build a quality portfolio of top rated bonds including government securities.
Since early 2000, TIIF has downsized its former high-yield sub-AAA portfolio to 9 per cent. Instead it focussed on government securities, to devote 45 - 50 per cent of its assets, ensuring that its quarterly returns outpaced the category averages by huge margins. This streak kept it in the top 10 in its category in 2000.
The following year, though interest rates kept dropping, Templeton India Income Fund, unlike its peers, capped its average maturity at six years. Sure, as government securities fluctuate more than bonds, TIIF's net asset value had its share of volatility. But its performance still placed it among the category leaders.
However, lower quality AA bonds have once again entered the portfolio. Unlike in the past, the allocation to these has been higher, this time around. The net result of these moves has been that off late the fund has slipped into the middle of its category.
The good news is that the fund is attacking costs in a sustained fashion, bringing down expenses continuously. That's always a welcome move - especially if returns are under pressure. At the end of the day Templeton India Income Fund remains a strong option for steady income seekers. This one is for keeps.