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A Cautious Player

Templeton India Income Fund follows a conservative investment style but does not let opportunities go by. It's an ideal fund for the coming year, which is likely to be volatile

This approach has resulted in the fund generating good returns without too much volatility. This fund is a good choice for risk-averse investors.

Being cautious in volatile times has helped Templeton India Income Fund do well in the past years. Since its launch in March 1997, it has posted negative return in only two quarters.

The fund's lower portfolio maturity on most occasions is responsible for its performance. While this caution may have prevented Templeton India Income from being a category topper, it has not stopped it from being a decent performer, with an added benefit of being one of the least volatile funds in the category.

When gilt prices fell dramatically in the first quarter of 2003, the fund reduced its gilt exposure to 40 per cent. Longer maturity gilts were also jettisoned taking the average portfolio maturity down to 4.88 years in February from 5.92 years in the previous month. Cash holdings went up to 11 per cent in this defensive manoeuvre. This helped Templeton India Income to preserve returns better than most of its peers.

Historically, this fund has resided in the second quartile of its category. Year 2000 was an exception when the fund found a place in the first quartile. However, 2004 has not been one of the best years in its performance record, as the fund finds a place in the bottom half of the category.

Government bonds, which used to be the mainstay of the fund, have given way to AAA-rated corporate bonds. The exposure to government securities, which used to constitute around half of the portfolio of the fund, was brought down significantly to only 7.40 per cent by April 2005. Now, they have once again started to get favour-as on July 31, 2005, gilts accounted for over 30 per cent of the portfolio. On the other hand, AAA-rated bonds, which used to account for 35-40 per cent of the assets till the first quarter of 2004, now dominate the portfolio with a share of 60.37 per cent. The allocation to AA and below rated papers has varied over time; at present, they are given less weightage, accounting for only 2.16 per cent of the portfolio.

Though the fund may have lagged behind its peers in the recent months, its low volatility and decent expenses make this fund an ideal companion for the coming year when turbulence can be expected.