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A Conservative Option

Invest in this fund if you are looking for conservative investment style, moderate returns and want to get rid of the job of deciding the right mix of debt and equity

UTI VIS derives its strengths from a strong focus on the quality of the portfolio and a dynamic asset allocation pattern which favours conservative investors. This small-sized fund offers value to those who want to achieve their goals slowly but steadily over the long-term.

Being an asset allocation fund, it has the flexibility to invest its entire corpus in either debt or equities or in any combination of both. But the approach to asset allocation is linked to the level of Sensex, unlike other funds where it is left entirely to the fund manager. To illustrate, the fund currently has set a band of 7,150-9,900 for the Sensex level (it was fixed in November 2005). The allocation to equities will vary between 70-90 per cent at the lower limit of this band but it would gradually be reduced to 10-30 per cent as the Sensitive index crosses the upper limit. This band is fixed up-front every year and is applicable for the ensuing year, unless new developments call for a review.

This makes the fund quite conducive to conservative investors. It ensures that the investors are not overly exposed to equities when the markets are trading at higher levels. And at the same time, they do not entirely miss out on the potential of equities when the markets are down. Profits are booked regularly as the markets rise and the money is transferred to safer debt instruments, to be invested again in equities when the markets fall. This relieves the investors of the need to act on their own.

This was evident when the markets declined last month. The fund was able to restrict its losses in the month of May to 3.68 per cent as it had reduced its equity exposure well in time from 40 per cent in January 2006 to around 26 per cent by the end of April in the wake of higher levels of the Sensex.

The fund's equity allocation generally remains within the band of 30-40 per cent for a majority of the months, making it comparable to a hybrid debt-oriented fund. Keeping that in mind, its trailing three-year returns of 19.86 per cent look impressive. The fund started off well in 2003 but the next year was not that great as it could manage returns of only 7.13 per cent - a high cash position (averaging 16 per cent) would not have helped its cause much. In 2005, the fund delivered returns of 17.68 per cent which would have placed it among the better hybrid debt-oriented funds.

As far as the portfolio is concerned, the fund maintains a strong focus on the quality. The equity portion of the fund is invested passively in the Sensex stocks and for the debt investments, the fund has never looked beyond government securities and top-rated corporate papers.