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Stability is Priority

This fund's ability to protect the downside is well-proven now. Even though it looks more aggressive now compared to its cautious past, Pru ICICI MIP continues to be one of the best options for conservative investors

The fund started off with an equity-free portfolio in October 2000, though it could have invested up to 15 per cent of the corpus in them. It adopted a cautious approach to duration management as well. This resulted in an MIP which lacked any returns firepower but was perfect for the normal MIP investor whose priority was capital preservation. Soon, this fund's low volatility and reasonable returns made it one of the more popular options in the category. It continues to enjoy that reputation till date.

However, the fund is not what it used to be five years back. It displayed first signs of change in mid 2003 by substantially increasing exposure to equities. The strategy worked, as it coincided with the markets rally. That year, the fund managed to beat an average peer for the first time. Next year was tough for the debt market and hence MIPs, including Pru ICICI MIP. Still, the fund's cautious approach to duration management ensured a return that was only marginally lower than that of an average peer.

The fund wears a different look today. It changed tack during the start of 2005 by pushing its average maturity higher than an average peer for the first time in its life. The fund also decided to exploit its underutilised equity mandate-since the start of 2005, it has invested nearly 14 per cent of its assets in equities. Exposure to relatively risky mid- and small-cap stocks too has been close to 39 per cent of the equity portfolio since then. Though the recent changes have increased the volatility of the fund, it's still one of the lowest in the category. This new approach has resulted in good returns for investors-the fund has generated category beating gains of 9.13 per cent till November-end this year.

The fund has tried to minimise risk by keeping cash and diversifying the equity portfolio in a number of stocks. Over the years, though expenses have increased, it's still less than the average peers. Another development for the fund has been manager change in October 2005- Jignesh Shah and Chaitanya Pande have replaced Nilesh Shah. A change of strategy has worked well for the fund so far. But will it live up to its reputation of a capital preserver with this approach? Nonetheless, Pru ICICI MIP is one of the better options in the MIP category.