Templeton India Income Fund (TIIF), intermediate term debt fund that has performed steadily with its quality debt portfolio. A no load fund, it holds a consistent track record of dividend payout - 15, 13, 10.25 and 8.25% in its four years of existence.
Despite its massive size of Rs 1888 crore, the fund has managed its pay out with an aggressively managed portfolio along with asset quality. In the initial two years of its inception, the fund held a lower maturity portfolio since interest rates were moving up. Rising interest rates lead to depreciation in bond prices, and the fund manager sought to augment returns with lower credit quality portfolio. Low credit instruments pay more interest and carry more risk. With the strategy not working in its favour, the fund re did its portfolio in 1999 in favour quality AAA rated instruments. While these instruments offer better credit and liquidity, they offer lower coupon income. Triple A rated instruments account for an average 88% of the corpus in the last trailing year.
The fund has sought to augment interest income with active interest risk management. Bonds gain in times of a interest rate cut and lose value in times of hike. The fund has actively managed interest rate risk by stretching maturity in times of a fall in interest rates and pruning in times of volatility. In the current bullish market the fund has stretched it maturity to 5.41 years. With a growing size the fund has actively curtailed expenses to climb up the return ladder.
With a return of 13.71% since launch amidst a rising asset base, TIIF has an impressive performance record. With aggressive yet actively managed portfolio, it has made it to the top of the category on the back of a quality portfolio. The fund is well geared to deliver steady returns.