Sundaram Bond Saver is an active member of a quintessentially sedate AMC. Over time, it has emerged as a medium-sized bond fund with a preference for bonds of varying credit quality while guarding against interest rate volatility.
Returns from bond funds are linked to interest rates. Bonds rally in the event of a fall in interest rates and vice versa, with longer dated papers more sensitive to interest rate movements. The fund has largely been conservative in handling interest rate risk - not stretching its maturity too far in times of a rally, and restricting investments to a lower maturity spectrum in uncertain times.
At the same time, the fund has actively sought to capture any upside with softening interest rates, by actively realigning across instruments of largely same maturity. For instance, at the time of the rate cut in April 2000, the fund had about a half of its corpus in gilts, which offer scope for trading profits. Further, within the same maturity, the fund opts for a higher allocation to AAA rated instruments when the spread between AAA paper and G-sec widens, while it tilts in favour of G-sec when the spread contracts. The relatively small asset base has only aided the fund's nimble-footed strategy.
The fund has maintained an average 84% exposure to AAA papers in 2001 - Gilts, Cash and corporate bonds and the rest in AA and un-rated papers. Thus, besides seeking trading profits from AAA rated instruments, the fund picks up yield through higher interest income from below rated instruments for being lower on the credit ladder. These instruments also offer scope for capital appreciation in the event of an upgradation.
The strategy, to earn regular income by changing tack with interest rate outlook has helped the fund post an annualised 13.19 % return since launch. Opt for the fund if you are not averse to lower rated instruments in your portfolio.