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For the Ultra-Cautious

Pru ICICI MIP has always been conservatively managed both on the debt and equity side. However, its relatively lower expenses as well as risk suggest that its primary objective is capital preservation.

Pru ICICI MIP has always been conservatively managed both on the debt and equity side. However, its relatively lower expenses as well as risk suggest that its primary objective is capital preservation. A look at the historic returns shows that both in the one-year and three-year periods, its performance has been in the bottom half of the category. However, its recent performance suggests that its conservatism has paid off in volatile times. Even though its year-to-date (till August 31, '04) returns at 0.35 per cent are below the category average of 0.44 per cent, its six-month, three-month and one-month performance are in the top half of the category, suggesting that it has limited downside, an essential feature of any MIP. In fact, in the six and three month horizons, it has an upper quartile performance.

The fund has always managed its debt portfolio conservatively. The average maturity of debt portfolio has never crossed three years (touched three years in July '03). Even during 2002, when interest rates were sliding, its average maturity never crossed 2.13 years. Interestingly, the fund's average maturity was at its highest from Dec '02-Sept '03, by when the bond yields had almost bottomed out.

However, the fund must be commended on maintaining a high quality portfolio. Barring a brief period (Dec '02-Jan '03) when the average credit rating of its portfolio had come down to AA, it has always maintained a AAA debt portfolio. Even in the volatile period of 2004, when all MIPs have come under tremendous pressure to protect returns, it has not compromised on its credit rating. At present, AAA and equivalent investments form 79.83 per cent of the fund's portfolio and only about 7.5 per cent in lower rated debt instruments with remainder in equities.

With a stated maximum equity allocation of 15 per cent, the fund, barring December '03, has never wandered close to that limit. Further, given that the fund on an average held 10.6 per cent of its portfolio in equities during the bull phase (spanning May '03- January '04), implies that the fund manager failed to capitalise on the equity rally. At present, it has upped its aggression level by increasing its equity exposure to 12.6 per cent from 9.6 per cent in July. Importantly, almost 80 per cent of its equity holdings is concentrated in large caps.

The fund can be categorised as a low risk offering. Among the 14 rated MIPs, the fund with a s.d. of 0.41 stands 11th position. This low volatility has and will stand it in good stead in falling markets.