This is one fund that will never give you sleepless nights. And that's because it neither takes aggressive equity positions (capped at 10 per cent), nor makes big interest rate calls on its debt portfolio. However, despite this cautious investment style, it has always been able to deliver above-average returns. In the volatile eight months of 2004, it's up 1.07 per cent as against the category average return of 0.64 per cent.
The fund's volatility, however, has been on the higher side in the category, especially due to mid-cap equity-orientation and a high portfolio turnover. Except for few stocks like ACC, Crompton Greaves, GE Shipping, Tata Tea and Lupin, the fund has not held most stocks for more than 3-4 months. Overall, the fund's equity allocation has been spread over 20-30 stocks. Though it has taken higher allocation to mid-caps, it turned out to be a good bet in 2003 when it posted second best return in the category - up 18.65 per cent. However, this year, the fund has stressed more on large-caps and added TCS, Infosys, ITC, Nalco and Wipro, which are expected to reduce the fund's volatility in times to come.
On the debt side, the fund has focussed more on quality, with gilts and AAA-rated bonds dominating the portfolio. In 2003's mid-year rally, Tata MIP gained on the back of higher gilt allocation (average 50 per cent). However, with volatility taking the centre stage in 2004, it has invested more in AAA-rated corporate bonds to earn a higher coupon income. Exposure to below AAA-rated bonds has been capped below 5 per cent of the net assets.
Though the fund has managed its debt portfolio with caution, but sometimes it has turned a bit aggressive, resulting in minor blip in its returns. For instance, in the Q1 of 2004, it kept a higher average maturity of 2.7-3.7 years, thus under-performing the category. But in the subsequent months the fund's low maturity helped in containing losses. However, in recent months, the fund has build-up a huge cash position of over 30 per cent. Since its equity allocation is touching its limit (9.61 per cent), the only option is to deploy it in bonds. But with expectation of further rise in bond yields, holding on to cash is not a bad idea.
Overall, Tata MIP has been one of the top-performing MIPs in the past few years and is best suited to those who don't want to take higher risk. The volatility is also expected to decline following large-cap orientation and a low maturity profile. However, investment should be done with a long-term investment horizon.
This article was originally published on October 13, 2004.
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