This one is different. Its equity allocation at 10 per cent is the lowest in the category. Even with this lower allocation it is more volatile that those of its peers, who hold equity in larger chunks. This could be due to bigger exposure to mid-cap stocks and high turnover.
Except for few stocks like Crompton Greaves, Uniphos Enterprise, GE Shipping, Ashok Leyland and Lupin, the fund has not held most stocks for more than 2-3 months. The fund has, however, been successful in booking gains on most occasions.
Also, as mid-caps gained more than large-caps in 2003, the fund's higher exposure in them resulted in its excellent performance - up 18.65 per cent in 2003. And it is these returns, which make the higher volatility bearable. In debt, the fund's focus is on quality. Through 2003, the fund was heavily into gilts (over 50 per cent).
With the debt market turning volatile in the past two months, allocation to gilts has come down to 40 per cent in January 2004. Historically, the focus of Tata MIP was on duration management of its debt holdings rather than on equities. In fact, equities vanished from its portfolio in April 2002 and reappeared only in February 2003. Thus, through 2002, Tata MIP outperformed the category purely through duration management of its debt holdings.
For example it increased its maturity from 5.5 years to 8 years in the three months leading up to rate cut of October 2002. Similarly, when small-savings rate was cut in Budget 2003, its higher maturity of 5.2 years helped it outperform its peers. The fund's success story in recent years resulted in huge inflows. As a result, net assets have grown from Rs 11 crore in January 2003 to nearly 400 crore as on January 2004.
In the last two months, this fund has shifted its focus more towards large-caps and has added Maruti Udyog, Hero Honda, ITC and HPCL in its portfolio. Moreover, its average maturity is also on the lower side in the category. Both these factors should help in reducing the fund's volatility in times to come.
Overall, Tata MIP is another good choice for investors looking to boost returns from a debt portfolio with the help of an equity kicker.