If you are comfortable playing the high-risk and high-return game, Tata GSF is the fund for you. There's no complain on the return front—all trailing and calendar year returns are among the best in the category. But the price that the fund pays in volatility may be too much for some investors to stomach. The fund typically keeps a high portfolio maturity and thus bears plenty of interest rate risk.
The fund's aggressive posture can be seen from the fact that its average maturity has crossed 15 years on four occasions with the highest being 18.3 years in August 2002. Most of these high maturities were during the rate cuts, which did wonders for the fund's performance. As interest rates plunged, the fund returned a whopping 28.39 per cent in 2001 and 26.95 per cent in 2002: the highest in the category.
But investors drooling for these big gains need to be watchful of the risks that the fund courts. Tata GSF's long maturity profile will work the other way if markets turn volatile or if rates rise. The volatile first quarter of 2003 offers a good reminder of this possibility. Tata GSF was among the biggest losers in the category—down 0.92 per cent against category average's 0.06 per cent loss. However, with subsequent fall in the gilt yields, the funds has more than made-up for those losses. Its year-to-date return is once again among the toppers in the category.
Even though Tata GSF takes interest rate risks, it does keep an escape route open by avoiding illiquid securities. A liquid portfolio gives enough room to a fund to modify its portfolio maturity in line with market conditions. For example, in April 2003, shorter-tenure bonds fetched higher return than medium-term bonds. At the time, Tata GSF's low average maturity of 6.14 years helped it beat its peers by 0.62 per cent. In the past year, this was the only period when the fund's average maturity fell below 10 years.
Its high CDSE of 1 per cent for disinvestments made within a year keeps away short-term investors. For investors willing to live with volatility, Tata GSF has many pluses—superb returns and an impressive track-record of being able to nimbly adjust its portfolio to the market's moods.
This article was originally published on December 17, 2003.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
