However, a quality equity as well as debt portfolio, low volatility and continuity of fund manager should comfort its investors.
The fund started with a modest corpus of Rs 23.72 crore in Feb '03. The stress was on safety and the AMC positioned the fund's debt portfolio as the one with relatively low average maturity, consisting mostly of short-term and medium-term floating-rate assets, which largely reduce price volatility. On the equity side, though the exposure could go up to 20 per cent, the investment universe is restricted to top 100 companies by market capitalisation, thus contributing to a largely liquid, large-cap portfolio, with relatively lower price volatility. The fund has largely stuck to this approach. As a result, its standard deviation (a measure of risk) has always been less than an average peer.
Coming back to the issue of underperformance, the fund has paid a price for sticking to its mandate of investing in large-cap stocks. Though it has maintained a high allocation to equities this year, it has lagged behind some of its aggressive peers who have gained on back of a portfolio laden with mid- and small-cap stocks. However, this should not be a big concern to investors who prefer stability (a much-needed attribute of an MIP) over flashy returns. Historically, this fund has never touched small-cap stocks and as the markets have moved in uncharted territory this year, it has cut exposure to even mid-cap stocks.
On the debt side too, the watchword is quality. Starting with a gilt heavy portfolio, the fund has now shifted its focus to corporate bonds. Of late, allocation to the former has been restricted to single digit to make way for high quality corporate bonds. The fund has also started to invest a decent amount in below AAA rated papers. For example, AA+ corporate bonds have enjoyed nearly 13 per cent exposure since they were first introduced in mid-2004.
Overall, the fund looks good for its quality portfolio and management consistency. Conservative investors would like this fund. The only concern here is the expense ratio. In a time when nothing substantial is expected from the debt side, this fund charges more than an average peer. Also, the expense ratio has gone up in the last one year. The fund needs to keep this in control.
This article was originally published on January 18, 2006.
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