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A Stable Vehicle

Don't expect miracles here. This fund is unlikely to race ahead of peers but will take you to your financial goal in a more stable fashion

A conservative approach makes UTI Bond a compelling option in uncertain times like these. Safety is the watchword for this largest income fund. It takes the least possible risk and gives investors a smooth ride across all time periods. Though this strategy has often resulted in average performance, its low volatility will let you sleep well even in the worst of the times.

In the past year and a half, investors have realised the true worth of the fund. It managed the tough period quite well and ended 2004 in the top half of the category. In the one-year period ending August 19, 2005, the fund has generated 10.06 per cent return, much more than the category average return of 5.32 per cent.

The fund manager does not like betting high on interest rates. For example, the fund's average maturity has crossed the five-year mark only on few occasions. The maximum that the fund hit was 5.65 years in January last year. This cautious strategy saved the fund when the markets turned hostile in early 2003-UTI Bond lost only 0.08 per cent in the first quarter of 2003 while the average peer was down 0.12 per cent. Also, in November 2003, the fund fell less than the category average. However, this strategy led to underperformance in the mid-year rally of 2003.

The fund maintains a quality portfolio with AAA and gilts accounting for more than 70 per cent of the corpus. It prefers corporate bonds to gilts. This strategy too has hit the fund's returns, as it failed to capitalise when interest rates fell. However lately, the fund has started increasing exposure to gilts.

Historically, the fund's corporate bond portfolio has been heavily tilted towards AAA-rated issues. Even now, AA+ and below papers account for only 15 per cent of the portfolio.

Given the fund's conservative approach, an average performance in bullish times is something investors can't fret over. Lower volatility and returns at a reasonable cost is what UTI Bond brings to the table-something that conservative investors will find to their liking. In the coming times of more volatile fixed income markets, funds like UTI Bond can be of much greater value to the conservative investor than they have been in the more predictable past.