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K Bond Deposit

After initial hiccups in interest risk management, the fund has got on track. And this has already started to produce favourable results

K Bond has always had a penchant for quality papers. It was its skill at interest risk management that has been honed gradually and the results are already showing. Under its quarterly dividend payout, the fund has paid four dividends to total 12.44%. The fund also offers loyalty premium to long term investors.

K Bond Deposit, a Rs 230 crore fund, has handled both credit and liquidity risks by largely parking in triple A-rated papers. This focus has only sharpened over time with quality papers accounting for an average 85% of the corpus. Nevertheless the fund has also shopped in AA and un-rated papers with an eye to pick up yield.

Interest risk management calls for altering the portfolio maturity in line with the outlook. For bonds gain value with an expected lowering of interest rates, and vice versa. Launched at a time when the debt markets were heading for a rally, the fund started off with a longer maturity portfolio, which was subsequently realigned with a hike in interest rates in July 2000. Despite active management, the fund did not turn up an above-average performance. In fact, with the bond markets turning volatile in mid 2000, the fund was one of the top losers as the best and worst returns suggest. However, resurrecting itself since October, the fund has reversed this performance with active interest risk management. On the back of a medium-sized corpus, the fund has turned in a category topping performance in the last six months, albeit with some aggression.

With a one-year return of 10.78%, K Bond today is an average performer. However, aided by its medium sized kitty, the fund has taken the right call on interest risk in recent times. If this strategy is sustained, it could emerge among the top quartile