Prudential ICICI MIP is an ideal choice for the cautious investor, who can't tolerate even moderate risk that some MIPs offer. Relatively low equity exposure vis-à-vis peers, a focus on quality portfolio and low maturity makes it one of the least volatile funds in the category. Thus, it will never outperform the category during market rallies, but would not disappoint you either when going gets tough.
Though the fund has not done well in the first two months of 2004, this should be overlooked given its stable long-term performance. This recent under-performance is largely due to a fall in some of its equity holdings in recent months. Historically, Prudential ICICI MIP had adopted a very cautious approach. For its first one year, it avoided equities. This helped it garner positive return during the bad month of September 2001, when most MIPs went into red. But as equities recovered post-9/11, it started investing in them. Even then, till April 2003, equity component had only accounted for an average 4 per cent of the portfolio.
On the debt side, it has been even more conservative. Its average maturity has always remained the lowest in the category. Except during the repo rate and bank rate cuts, the fund's average maturity has never crossed 2.5 years. Though this strategy has lagged its peers in bullish times, but helped it hold ground during tough times—the fact that is reflected in the fund's better performance in the volatile Q1 and Q4 of 2003.
The fund has not compromised on quality. On the equity side, it has largely invested in large-caps, while on the debt front, it has mostly stuck to AAA corporate bonds. Gilts have accounted for under 20 per cent of its portfolio. However, the fund has more liking for short-term instruments-one-fourth of the fund's assets have been invested in commercial papers and treasury bills, which is largely responsible for the fund's low average maturity. An investment in below AAA rated bonds is currently capped at below 10 per cent of the portfolio.
Though Prudential ICICI MIP has largely lagged its peers in terms of returns, its consistency, stability and low expenses - its expense ratio of 1.5 per cent is among the lowest in the category - makes it a suitable fund for the low risk investors.
This article was originally published on April 20, 2004.
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