Safety is the mantra by which UTI Bond lives and the fund is well suited to investors who think likewise. The fund takes minimal risk and thus gives investors a smooth ride across all time periods. Though this may translate into lower returns in good times but its rock-bottom volatility will let you sleep well even in the worst of the times.
This low-risk behaviour is evident from the fact that its average maturity has never exceeded 5.5 years. The most that the fund's average maturity has hit is 5.37 years in October 2003. Due to this conservative approach, the fund has not been able to capitalise much in the mid-year rally of 2003. But this did prove beneficial when the market turned volatile in 2003 Q1—UTI Bond lost 0.08 per cent while the category lost 0.10 per cent.
Also, in the volatile month of November 2003, it fell less than the category average. But due to its inability to ride in good times, the fund has ended 2003 just up 6 per cent—much below the category average.
Since UTI Bond believes in the philosophy of generating stable returns, corporate bonds comprise a large chunk of its portfolio—averaging 72 per cent during 2003—with government securities accounting for a much smaller exposure. Therefore, a large part of its returns have come from interest income rather than trading profits. This is also responsible for UTI Bond's below average performance since 1999, when interest rates actually started to decline.
UTI Bond has overhauled its corporate bond portfolio in favour of AAA-rated issues. In the past one and half years, the fund has reduced the share of below-AAA rated paper from 37 per cent to below 20 per cent now. AAA-rated bonds currently account for over half of the portfolio.
Given the fund's conservative approach, an average performance in bullish times is something investors can't fret over. Lower volatility and returns at a reasonable cost is what UTI Bond brings to the table—something that conservative investors will find to their liking. In the coming times of more volatile fixed income markets, funds like UTI Bond can be of much greater value to the conservative investor than they have been in the more predictable past.