The performance of this fund reflects the changing fortunes of the MIPs as a category. The fund delivered good returns during 2002, as the interest rates were still heading southwards, and the fund had a high maturity profile which averaged 4 years. However, in the more recent years, the fund is finding it difficult to keep pace with its peers. In fact if we look at the annual returns, it has failed to beat the category average in both the completed calendar years of its life. This is because of two reasons. Firstly, though the fund has reduced its average maturity, but it is still on a higher side. During August 2005, the fund had an average maturity of 2 years, higher than the category average of 1.53 years. In fact, the category average has never gone beyond 2 years after May 2004. A higher maturity profile caught the fund manager on the wrong foot in the more recent months. The second reason is that the fund invests less in equities, because of which it failed to capitalize on the opportunity provided by the bull run in stock markets. By maintaining a higher average maturity, the fund bets big upon interest rate movements. However, it avoids taking credit risk. As per the October 2005 portfolio, the fund had 68.45 per cent exposure to AAA rated papers. Gilts constitute 10 per cent of the portfolio. When it comes to equities, the fund looks quite defensive. While the investment in equities is capped at 15 per cent, the fund barely crosses 10 per cent mark. Historically, large-caps have dominated the equities portfolio of the fund. But that is changing gradually, as in the last few months, the exposure to mid- and small-caps has increased notably.
This article was originally published on December 29, 2005.
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