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Moderation Pays

Being conservative, without letting opportunities go by has brought this fund good returns without too much volatility. Templeton India Income is an ideal companion for the coming year where turbulence can be expected.

Being cautious in turbulent times has helped Templeton India Income Fund do well in what has been pretty tough year. In this volatile year returns have gone into negative territory on two occasions. Both times Templeton India Income Fund has come out in better shape than the average fund in this category.

The fund's lower portfolio maturity is to thank for this. And this lower maturity has been cautiosly maintaied by the fund throughout the year. While this caution may have prevented Templeton India Income from being a category topper it has not stopped it from being an above average performer.

Rather, its moderate approach has resulted in it being one of the least volatile funds in the category. At the core of its portfolio is a collection of AAA rated bonds which make up a third of its holdings. A garnish of AA and associated papers tops up the bond component. These AA papers are now given less weightage, accounting for only 6.5 per cent of the portfolio. At the start of the year they constituted a tenth of the fund.

Government securities have formed the mainstay of the fund. Close to 50 per cent of the portfolio is in these sovereign instruments. When gilt prices fell dramatically in the first quarter of 2003 the fund reduced this exposure to 40 per cent. Longer maturity gilts were also jettisoned taking average portfolio maturity down to 4.88 years in February from 5.92 years in the previous month. Cash holdings went up to 11 per cent in this defensive manoeuvre. This helped Templeton India Income to preserve returns better than most of its peers.

The disappointment of the credit policy in November 2003 did not see the fund conduct any dramatic realignment in its portfolio. This performance has seen the fund notch up a second quartile standing. Historically too, this fund has resided in the second quartile of its category. Year 2000 was an exception when the fund found a place in the first quartile.

Templeton India Income's performance has seen it cross Rs 2,000 crore way back in June 2001. Since then the fund has not been able to grow more. Low volatility and low expenses make this fund an ideal companion for the coming year where turbulence can be expected.