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Running a Little Faster

Prudential ICICI MIP has a history of being a conservative fund but lately, it is moving its performance into a higher gear. This move should serve the fund well now that interest rates are bottoming out.

Since its October 2000 launch, Pru ICICI MIP has been a textbook example of how a conservative and cautious MIP should be run. For a year after its launch it did not invest in equities at all, thereby escaping the post-9/11 trauma that hit practically every other MIP. And even though it moved into equities in December 2001, it held its equity exposure to under 5 per cent till May 2003. Its debt portfolio too, mirrored this approach for a long time: it stuck mostly to high-quality corporate bonds, keeping potentially volatile gilts to under 9 per cent till March '03. However, with the spread between AAA bond and gilts, and that between AAA and AA bonds, getting narrower, the fund increased its exposure to lower-rated papers from 11 per cent in April 2002 to 22 per cent now.

The low exposure to gilts has always meant an average maturity much below the category average. While this has kept it from reaping the rewards of interest rate cuts, it has also helped it limit losses during volatile periods. When war fears shook up the debt markets in January this year and all MIPs posted negative returns, Pru ICICI MIP's 0.12 per cent loss for the month was the least in the category. The story was similar during March 2003: MIPs lost 0.31 per cent on average but Pru ICICI lost 0.26 per cent.

However in recent months the fund's portfolio has undergone a clear change in approach. The fund's interest in stocks took a sharp turn upwards in May this year and its equity exposure moved up from 2.77 per cent in April to 8.58 per cent on July 31. This has, of course, been the ideal period for developing a stronger interest in equities.

The fund increased exposure to Infosys in May (after it had crashed in April) and also added Reliance, Ranbaxy, HPCL and Maruti to its portfolio in June. Its current exposure to equities is the highest it has ever had. The new spirit of performance is also evident in Pru ICICI MIP's gilt holdings. At 21.4 per cent on July 31, its exposure to gilts is also the highest it has ever had.

At 1.5 per cent, Pru ICICI MIP's expense is one of the lowest and it is also the second least volatile fund in this category. The fund's history suggests that it is suitable for conservative investors, although it is evident that its character is undergoing a slight shift.