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Fixed Income Prowess

JM Mutual is one of the country's oldest private AMCs and is a specialist in generating high debt-fund returns. But, with the end of the rally in debt markets, it will have to look at equities to occupy mindshare commensurate with its size.

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JM Mutual fund has become a major fund house by concentrating on doing one thing very well --running an aggressive income fund. While the AMC has recently started getting some mindshare to new products, it will take some time before these become important part of its product portfolio.

For five consecutive years between 1999 and 2003, the AMC's flagship—JM Income Fund—has occupied the first quartile of its category. Investors have also recognised the strengths of the scheme and have flocked to it in droves. Along with JM High Liquidity, JM Income accounts for three-fourth of the total assets under management. In contrast, the AMC's equity funds had remained pallid. JM Equity-G has been a below average performer and in the past five years has never risen above the third quartile in it is category. Except for 2001, JM Balanced has also performed below average in the last five years.

The absence of an attractive track record in equities is reflected in JM Mutual's low base of equity assets. Equity and balanced funds taken together account for less than 1 per cent of total assets (Rs 4,273.51 crore as on December 31, 2003).

JM Mutual Fund is no new kid on the block. It came into existence in September 1994, just after the opening-up of the mutual fund industry to private players. At the time there were only six private sector funds in the market. JM Mutual launched itself in the business by bringing in three funds, JM Income, JM Equity and JM Balanced, which were launched simultaneously in December 1994. JM Mutual Fund is sponsored by J.M. Financial and Investment Consultancy Services Private Limited (JMF) and J.M. Share and Stock Brokers Limited (JSB).

Fund Philosophy and Performance
JM Mutual Fund is known for its aggressive investment style in debt. For instance, the average maturity of both JM Income and JM G-Sec funds (both PF and Regular Plans) had always remained on the higher side in the category. While this has helped these funds deliver higher returns they have also been among the more volatile funds in their respective categories.

According to Krishnamurthy Vijayan, CEO of JM Mutual, "The investment strategy in JM Income Fund is based on the philosophy of maintaining a relatively higher duration when the bias towards softening interest rates is strong. Due to credit risk and liquidity risk considerations the exposure to government securities is higher compared to corporate bonds".

This aggressive stance is also seen in the recently launched JM MIP. The funds average portfolio maturity at November end was 8.65 years against a category average of 3.32 years. In October this was even higher at 9.84 years. The result of this volatility was that between October 16 when bond yields bottomed out and December 2, 2003 when they peaked the fund lost 1.4 per cent. In the same period the average MIP was up 0.35 per cent.

Commenting on the higher portfolio maturity Nandkumar Surti, Head–Fixed Income said that "he average portfolio maturity of JM MIP is high as we expect that yields would soften on the back of lower inflation, liquidity and the implementation of the LAF report. The philosophy of the fund is to capitalise on this opportunity and shift to money market instruments by mid February. Hence maintaining a high average portfolio maturity is only a temporary strategy".

On the equity side JM follows a conservative approach. According to Vijayan, "Our investment philosophy has been to invest in 'Best of Breed' companies. 'Best of Breed' essentially means companies that are the industry leaders, possess excellent management skills and visibility, have strong brand equity and are financially sound.

Product Innovations and Services
JM Mutua

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