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A Low-Risk Proposition

This MIP won't dazzle during rallies, but for long-term investors, its steadiness is tough to beat. With a relatively low equity exposure vis-à-vis its peers, it should appeal to cautious investors.

Here's an MIP that's tailor-made for conservative investors who abhor the kind of wild ride that more aggressively-managed MIPs can give. Though Magnum MIP-G may be a below-average performer in the category, its low volatility more than compensates for the lower returns.

Initially, corporate bonds were the staple of Magnum MIP-G's portfolio. Till 2001, two-thirds of its assets were invested in AAA-rated bonds. Moreover, it had one of the highest average maturity among the peers—nearly three years. But as it had no gilt allocation and marginal equity exposure, it remained an average performer.

Despite having one-fifth of its portfolio in lower rated bonds, Magnum MIP-G has never invested in bonds with rating below AA. In recent times, it has become more quality-conscious and has sold the two AA+ rated holdings—Indian Hotels and L&T, and has also increased its gilt exposure. It bought gilts for the first time in August 2002, and that too in small dosage. Till February 2003, it had an average 2.5 per cent gilt exposure and the fund's average maturity was on the lower side in the category.

Though this cautious style may appear sluggish, it worked in the fund's favour during the volatile months of January and March 2003—the fund suffered the least. Since March 2003, the fund is taking on gilts in a big way. At present, it has one of the highest gilt exposures, thus having the highest average maturity in the category.

On the equity side, the fund has exercised as much caution. Magnum MIP-G did not have equities for most of its tenure. The fund started investing in equities in January 2002 and its investment was confined to a few select stocks, accounting for just 3.75 per cent allocation through 2002. This helped the fund in outperforming the category when equity markets tanked in the second and third quarter of 2002. Due to this low equity allocation, it is currently slated as the least volatile fund in the category. However, following the recent rally in the stocks market, the fund has increased its equity exposure to over 12 per cent now.

Magnum MIP-G won't dazzle during rallies, but for long-term investors, its steadiness is tough to beat. Those who believe that slow and steady can win the race will like this MIP.