This fund has a reputation for being a bit more defensive than the average bond fund. This does not mean that Prudential ICICI Income Plan's returns are any less than the average counterpart. But, of course, this means a less downside risk here. This is widely evident from the fund's consistent outperformance in the category in 2003, which has been a volatile year.
However, these returns have come by embracing a slightly higher risk. After a not-so-promising show in 2002, the fund has started taking some aggressive bets now. In the past two months, the fund has raised its portfolio maturity to over 7 years. Compared to other funds, this number is not too large. Then, why is it aggressive? Simple: that's the highest this scheme has gone on the maturity scales. Historically, it has stuck to much lower maturity levels. Even when interest rates were declining in 2001, the scheme's average maturity stayed between 3.1 and 4.3 years -- while its peers were pushing five-year-maturity levels without batting an eyelid. The story was similar in 2002. Though the average maturity crossed five years, it was still on the lower side in the category.
The watchword with this scheme is quality. Examine its portfolio, and you will never find less than 70-80 per cent of its assets invested in AAA corporate bonds and gilts. Exposure to bonds with less than AAA ratings? Capped at 15 per cent. Its conservative style ensured it made only small interest rate and maturity-spectrum bets, focusing instead on quality.
The fund has consistently delivered decent long-term returns. Even during the volatile first quarter of 2003, it managed to beat its peers comfortably. The returns have been more promising in the subsequent two quarters – 3.88 per cent and 3.43 per cent respectively – which is nearly half a per cent higher than the category average.
The fund has mostly avoided active trading in securities and largely depended on a buy-and-hold strategy. It has also not hesitated in deploying a certain portion of its assets into cash when needed. For example, during the rate hike of July 2000, the fund went defensive with 18 per cent in cash. However, the fund is now developing an appetite for longer dated papers. Government securities now account for nearly 50 per cent of the portfolio.
Over the long haul, Prudential ICICI Income Plan's well-executed strategy has kept unit holders in good stead. The fund's high-quality portfolio has provided good returns with less volatility. Though, the fund has got a bit aggressive look now, it's still a compelling choice for cautious investors.
This article was originally published on November 27, 2003.
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