If one had to describe this fund very briefly, it would not be difficult. In fact, three short sentences would do just fine. Great returns. Low risk. One of the lowest expense ratios in its category. |
Little wonder that investors have flocked to this medium-term debt fund taking the AUM from Rs 69.77 crore in December 2004 to Rs 1,777 crore in May 2007. As assets rose, its expense ratio gracefully dipped from 1 per cent (March 31, 2005) to 0.5 per cent (March 31, 2007). |
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The fund has not even completed 36 months in existence but has outshone many of its peers. Since June last year, it has bagged (and held on to) a 5-star rating. The rankings of the last three weeks put this fund anywhere from No 2 to No 5 in the six-month, one-year and two-year rankings. So what are the reasons behind the accolades? |
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The fund manager has played it smart. In 2005, the average portfolio maturity was not too high or low but just "average". From 2006 onwards, with the increase in money supply and inflation, he played it safe and his average maturity dipped to "low". This paid off with the rising CRR and subsequent interest rate hikes. While the average maturity this year has been 0.48 months, in May it was just 0.26 months. |
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But the low risk on the maturity front was temporarily offset by the credit rating - the average credit rating this year has dropped from AAA to AA. |
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But the reason the fund house gives is that they were faced with huge redemptions in the first few month of the calendar year forcing them to sell their AAA-rated securities. A look at the May portfolio bears this out and the average credit rating is now back to AAA. Despite this, the number of holdings is high at 63 so the risk of even a drop in credit rating is balanced. |
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What works in favour of this fund is that the fund manager Ritesh Jain is a dealer, a trait that holds him in good stead as a bond fund manager. Up to 20 per cent of the fund's assets are deployed for trading and the rest is held in assets. The capital gains arising from such trading opportunities adds to the overall returns. |
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