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The Struggle Continues

A middle of the road performer, it protects the downside well. A more proactive strategy from the management can help the fund, as it has always failed to cash in on any bull run in equities

Pru ICICI MIP has always been a middling performer with some good points that raise it above the crowd.

Historically, this fund struggles to match its peers when the going is good, but when the markets turn rough, it manages to protect returns better than most others do. Q1 of 2003 and Q2 of 2004 were good examples of this defensive expertise.

During the former, the category returned negative 0.09 per cent while this fund delivered 0.4 per cent. The latter saw the fund lose just 0.28 per cent in a quarter when the category crashed by 1.41 per cent.

The fund's history clearly underlines its conservative strategy while managing its debt as well as the equity investments.

When the top performers of the category have fixed for themselves a cap of 20 per cent on the equity investments this fund restricts itself to 15 per cent of equity exposure. In the recent past the fund has demonstrated an increasing risk appetite.

This is evident from the attempts to exhaust its 15 per cent cap with equity investments, which was rare earlier. Along with this the number of companies and sectors in its portfolio has also risen and has added some diversification. With debt investments also the fund has maintained a risk-averse stand as its average maturity never touched the three year mark. Even during 2002, when interest rates were sliding, average maturity never crossed 2.13 years.

Curiously, the last few months have seen some longer maturity calls at a time when other MIPs are reducing maturity. Still, the overall risk taken by the fund is below average in the category. The fund has maintained a high credit quality throughout its life. At present the fund has 44.41 per cent allocation to AAA-rated debt instruments and only 13.70 per cent to lower rated bond funds.

Overall Pru-ICICI MIP is a good call when the markets are dipping but one can't expect it to outstrip others when the markets are rising.