FUND PICK: ICICI Prudential MIP 25 Fund

High on quality, returns

ICICI Prudential MIP 25 Fund is a debt-oriented hybrid fund that primarily invests in debt instruments, with the maximum exposure to equity capped at 30 per cent of total net assets. The fund seeks to generate regular income through investments primarily in debt and money market instruments. As a secondary objective, it also seeks to generate long-term capital appreciation through equity investments. Managed by Manish Banthia (debt) and Rajat Chandak (equity), the fund’s quarterly average assets under management stood at Rs 1,278 crore as on September 30, 2015.

Crisil classifies monthly income plan, or MIP, funds as aggressive and conservative, based on equity component. A higher allocation to equity (15-30 per cent) is classified as aggressive and a lower equity allocation (up to 15 per cent) is classified as conservative. Within the stated allocation, a fund manager might alter a portfolio’s equity exposure, based on the prevailing market scenario. ICICI Prudential MIP 25 Fund has been categorised as MIP Aggressive.

Superior performance

The fund has given a compounded annual growth rate returns of 10.41 per cent since its inception in March 2004 and has consistently outperformed its benchmark (CRISIL MIP Blended Fund Index) and the category (schemes defined under CRISIL Mutual Fund Ranking – MIP Aggressive Category) across various time frames (barring the latest six-month period, where the fund has marginally underperformed its benchmark index).

Even on a risk-adjusted basis, the fund has performed well, as reflected in a higher Sharpe ratio of 0.74, compared with the category’s 0.50 and the benchmark’s 0.28, over the past three years ended November 2, 2015. Similarly, the fund had a Jenson Alpha (a risk-adjusted measure of excess returns over market returns) of 2.64 per cent, compared with the category’s 1.30 per cent.

An investment of Rs 1,000 when the fund was launched would have grown to Rs 3,153 as on November 2, 2015 (annualised returns of 10.41 per cent) compared with its peer group’s returns of Rs 2,873 (at 9.53 per cent) and the benchmark’s Rs 2,405 (at 7.86 per cent). The fund has also outperformed in systematic investment plan, or SIP, returns vis-à-vis its benchmark across time frames.

Consistent dividend payouts

Over the past three years, the fund has distributed an average 0.56 per cent in monthly dividend in 35 months, indicating consistency.

Duration management

The fund has actively managed interest rate risk, compared with its peers by altering the modified duration, according to interest rate movements. For instance, when 10-year G-Sec yields rose from 7.58 per cent to 8.9 per cent during June 2013 to June 2014, the fund reduced its modified duration from 3.67 years to 2.54 years.

Subsequently, in a falling interest rate scenario, the fund increased its modified duration. For example, when the benchmark yield fell from 8.74 per cent to 7.54 per cent during August 2014 to September 2015, the fund increased its modified duration from 3.25 years to 5.5 years; compared to 3.81 years to 4.91 years by the category in the same period. The ability to anticipate the change in G-Sec yields, better than its peers, rewarded the fund with relatively higher returns.

Portfolio analysis

During the past three years, the fund had an average 73 per cent exposure to debt, 22 per cent to equities, and the remaining to cash and cash equivalents.

The debt portfolio is well-guarded in terms of credit risk, given the investments in the highest-rated debt papers (AAA/P1+) and government securities. During last three years, 83 per cent of the debt portfolio is invested in these papers. Out of its debt exposure, from December 2012, the fund has gradually increased its investment in government securities – from four per cent to 69 per cent, by reducing its exposure to sub-‘AAA’ papers – from 36 per cent to eight per cent.