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An Effective MIP

While no MIP can (or should) be aggressive, this fund takes aggression as far as it can reasonably be taken by an MIP. Active management of equity as well as debt portfolios has resulted into handsome gains here

As on January 17, 2006, it boasts of the best three and five-year returns in the category.

Beginning its life as a Rs 43-crore fund in November 2000, FT India MIP established itself as the best fund in the category the very next year. Since then it has delivered top quartile returns every calendar year. However, it was only in mid 2003 when investors realised the real potential of the fund. FT India MIP started 2004 as the largest fund, achieved a maximum size of Rs 1,984 crore in May 2004 and since then has maintained its lead.

The fund's reason for success is adroit management of both the equity and debt portfolios. On the debt side, the fund has benefited immensely by playing its maturity card aggressively-normally, it keeps average maturity more than an average peer. During its early life, the fund managed to reap heavy profits by taking longer interest calls. For instance, between January 2001 and March 2004, when yields were sliding, its average maturity of debt holdings on an average was 3.97 years. Now, the fund has adjusted its average maturity by bringing it down to 2.4 years as on December 31, 2005. Still, that's more than its average peers'.

Additionally, the fund has improved its debt portfolio of late. At December end, AAA papers accounted for 57.27 per cent of the portfolio. Allocation to lower-rated papers had dipped from double digit a few months back to around 9 per cent in October last year. However, they have once again staged a comeback. Interestingly, gilts, which had lost the fund's favour, have staged a comeback. Though, the allocation to them is very low.

On the equity side, the fund makes optimum use of its mandate to invest up to 20 per cent of the assets in equities. In the last two years, the fund has cashed in on the equity markets rally by allocating an average 18.65 per cent of its corpus to equities. A combination of high maturity and equity exposure has, though, resulted into above average volatility for the fund. As a risk control measure, the fund has always aintained a concentration of large-caps. Within that, it has distributed and diversified its portfolio over 25-35 stocks across various sectors.

The fund has also done a good job in keeping the expenses under control. The expense ratio, which used to remain 2 per cent till February last year, has dropped to 1.89 per cent as on September 30, 2005.