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KP Pension Plan

Kothari Pioneer pension Plan is an open-end pension fund, launched in April '97. While the fund seek

Kothari Pioneer pension Plan is an open-end pension fund, launched in April '97. While the fund seeks to invest in debt instruments, it can take a maximum investment of 40 per cent in equities. In its dividend option, the fund has paid three dividends of 12% each in the last 3 years. Investors can invest up to the age of 58 years with a minimum amount of Rs 10,000 that can be either a lumpsum or in instlaments of Rs 500. Investments of upto a maximum of Rs 10,000 are eligible for tax rebate u/s 88 and carry a lock-in period of 3 years.

The fund has since launch given an impressive annualised return of 15.02%. When interest rates fall, prices of debt instruments rise with greater impact in the instruments of longer tenure. The fund has posted higher returns by being consistently maintaining a medium-term maturity profile. Also its higher allocation to AA quality papers has pepped returns for they carry a higher coupon for the higher attendant risks. The fund had an average exposure of 55% in these papers till the second-half of 1999, which has since been pared to 30%. During the rather turbulent markets of 2000, the little redemption pressure and lesser fluctuation in the prices of double A papers has provided a cushion to the fund. The fund has since May 2000 taken an exposure of equity which today stands at 26 %. A diversified basket, the fund has a 13% exposure to infotech.

However, the concentrated bets and higher component of AA papers, quality notwithstanding, do carry a higher risk. Nevertheless, besides the tax rebate, the higher inflation adjusted return of the fund would work in favour of investors who opt for the systematic investment plan and stay on beyond the lock-in of three years.