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Gathering Pace

K Bond Short-Term Plan may not have topped the returns chart, but its low volatility makes it a decent pick. Investors with a short-term investment horizon of one to six months can consider this fund.

After clocking an average performance in 2002, K Bond Short Term Plan has managed a category-beating performance this year so far. Launched in April last year, this short-term offering from Kotak asset management company has posted a year-to-date return of 3.4 per cent against the category average of 3.21 per cent, as on July 5, 2003.

To avoid the volatility in the NAV, the fund initially resisted gilts. That the fund followed a conservative approach in 2002 was evident from the low average maturity of its portfolio compared to its peers. For instance, prior to the rate cut in October 2002, K Bond Short-Term Plan had an average maturity of one year—one of the lowest in the category.

As a result, the fund underperformed the category in November 2002. Despite being conscious about volatility, this fund, due to its gilt exposure, has often maintained high portfolio maturity this year. The fund in the volatile month of February 2003 was able to hold ground with a return of 0.34 per cent that month. It was in March 2003 that the scheme performed better than the category for the first time, and has done so consistently in the past four months. With low volatility, K Bond Short-Term Plan has been able to post good risk-adjusted returns.

As a matter of policy, K Bond Short-Term Plan believes in taking gilt exposure when the bond market looks good in the short-term and it buys gilts purely as a trading call with a view to book profits after the price movement. As gilts are mainly at the long end of the spectrum, this leads to an increase in average portfolio maturity--though for a short duration.

For example, in May 2003, this fund sharply increased exposure to government securities by adding GOI 2010 5.87 per cent security, which formed 6.25 per cent of its portfolio. Therefore, it is quite clear that K Bond Short-Term Plan will not shy away from taking risks to generate extra returns from short-term movements of yields.

K Bond Short-Term Plan has a low expense ratio of 0.88 per cent, compared to its peers. This offering from Kotak Mutual is a decent pick and will suit investors who have a brief investment horizon.