There's an old saying that says that an excess of anything is bad. While that implies that moderation is always good, Pru-ICICI Moderate Plan Fund-of-Funds has managed to achieve an excess of moderation! This plan promises investors 40-60 per cent of equity, 30-40 of debt and 10-30 per cent of other money market schemes. However, its actual allocation over the past two quarters has been far more conservative, with equity staying around 25 per cent for five of the past seven months (see accompanying table)
This excessively moderate portfolio has meant that investors in this Rs 15.87 crore plan have had to make do with far lower gains than they had a right to expect. This is all the more curious because this Fund-of-Funds invests only in Pru-ICICI's own schemes and its fund managers would certainly have access to the portfolio positions of the funds that it is holding.
A straightforward analysis shows that had the FoF invested even as per its stated benchmark (NIFTY: 50 per cent; Crisil Composite Bond Fund Index-35% and Crisil Liquid Fund Index 15%), it would have generated a much better return.
| ||||||||||||||||||||||||||||||
Something similar has also been happening in another Pru-ICICI FoF, the Pru-ICICI Advisor-Very Aggressive plan. Here, the stated target is to be 90-100 per cent in equities and not enter debt at all. In reality, the fund has kept equities to 75-80 per cent and has had debt allocations as high as 24.83 per cent in April 2004.
Of course, these allocations are not actual violations of the FoFs' offer letters since that documents states that the fund managers are free to change allocations according to market conditions, but surely this kind of a thing will hardly appeal to investors as an example of 'protecting their returns'.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
