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Zurich India High Interest

Zurich India High Interest may not have been a chart buster but it has delivered modest returns with its conservative strategy

Zurich India High Interest may not have been a chart buster but it has delivered modest returns with its conservative strategy. Since launch in April 1997, the fund has paid a cumulative dividend of 42 per cent under varying frequencies. The fund now offers "ZuriCheques", which are issued for various denominations and facilitate faster withdrawal.

The fund, which took off with a meagre corpus, has seen an exponential growth in assets since 2000. The highlight of High Interest's four-year tenure has been its unflinching commitment to credit quality, which also solves the problem of liquidity. The exposure to lower-rated paper has been capped below 10%. While the fund was initially overweight on triple A corporate bonds with emphasis on interest income, it has gradually increased allocation to government securities with a rise in corpus. While corporate debentures are largely illiquid beyond five years, gilts provide both liquidity and maturity at the longer-end of the yield curve. The fund's average gilt exposure has gone up from around 20% in 1999 to 45% in the current calendar with the fund manager taking advantage of the softening interest rates.

Yet, unlike its peers, Zurich India High Interest has maintained its gilt investments in the 7-10 year band. This has helped the fund pick up yield in this band since it offers a higher yield spread and thus, a favourable risk-return tradeoff. This has also limited the fund's portfolio maturity to a little over four years. Further, the fund charges one of the lowest expenses among its peers which translates into an incrementally higher return.

For the two years ended May 31, 2001, the fund has posted a return of 12.90 per cent, marginally ahead of the category average at 12.43%.