Prudential ICICI Income may not be an out and out high flier but its consistency is hard to beat. A focus on quality and some dexterous maturity management has meant decent returns for investors. This could be the perfect choice for conservative investors who appreciate steadiness.
After an uninspiring show in 2002, the fund proved its mettle in 2003 by navigating the year's rocky markets with ease. In the volatile Q1, it just lost 0.03 per cent vis-à-vis category's loss of 0.10 per cent. Then, in the subsequent two quarters, the returns were more promising-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 largely benefited in the mid-year rally by maintaining a high average maturity of 6.83-7.16 years (between May-October). And following increasing volatility in last two months of 2003, it reduced its portfolio maturity to 6.7 years in November, thus, displaying the fund manager's astute portfolio management skill. Overall, it has ended 2003 among the top half funds in the category.
Historically, this fund had a reputation for being a bit more defensive than the average bond fund. 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. Thus, it was not able to gain much through 2002 and landed in the bottom half of the category.
The watchword with this scheme is quality, with 70-80 per cent of its assets invested in AAA corporate bonds and gilts. Initially, as the fund used to take small interest rate bets, corporate bonds dominated the portfolio. But, with declining spreads and the urgency to raise portfolio maturity, gilts now account for half of the portfolio. Exposure to bonds with less than AAA ratings has been capped to an average 7 per cent of the portfolio through 2003.
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 consistency. It's a compelling choice for cautious investors.