PNB debt fund seeks to generate steady income consistent with prudent risk, through investments in debt and money market instruments. In its dividend plan, the fund has declared three dividends -- 4% each in February and May 2000 and 5% in March 2001.
Launched as a medium-term debt fund, the fund has carried a gilt portfolio and comparable more to a gilt fund than a generic medium-term debt fund. Of course, with this strategy the fund has steered clear of credit quality and liquidity issues, as gilts carry soverign guarantee and actively traded as well. But, the price risk prevails.
With a concentrated portfolio of medium to longer dated government securities, the fund has clearly sought to manage the fund aggressively, across all time periods. The small asset base has also been helpful. However, this portfolio exposes the fund to interest rate risks, as bonds gain value when interest rates fall and vice-versa. Further, this movement is more pronounced in longer dated papers. Even while this aggressiveness padded up returns, its has been possible only by courting that extra bit of volatility - as the worst months performance suggests. Even while the fund lagged its category in times of bear spell, its performance in the bull phases of the market has done it enough good to make it as a top performing fund in its category.
With a total return of 16.45% since launch, PNB Debt is surely a block-buster. But if you shopping for a sober debt fund, then don't get swayed by the returns alone. As the joy ride of high-return can also be wild.