Principal Income's record of consistent outperformance makes it one of the better picks in its category.
Principal Income had an auspicious start in October 2000 when interest rates started to drop, and the fund was quick to grab the opportunity. The fund's disciplined approach to credit and interest-rate risk makes it one the most effective offerings in the fixed-income category.
After its launch, the fund played some bets in government securities (an average 35 per cent in 2001) and clocked gains during the two rate cuts in early 2001. It ended the year in the top quartile.
This performance was repeated every time interest rates fell - during November 2000 to December 2001 and May 2002 to January 2003. During market rallies, it may not have posted super-normal returns like some other funds as it has rarely stretched out too far on portfolio maturity.
The next two years were also lucrative for the fund's investors. The fund has returned 3.02 per cent since the start of this calendar year (as on July 15, 2005), better than the category average return of 2.72 per cent.
The fund is known for managing downside risk better. The fund manager senses forthcoming volatile situations better than peers. So, during the spurts in interest rates in December 2001 and May 2002, it lost less than peers. In 2004, too, the fund managed a place in the top half of the category.
The fund's portfolio keeps oscillating between AAA papers and gilts. In recent months, its exposure to government securities has been reducing.
Among corporate bonds, the fund has been ignoring low-rated papers. It's exposure to these issues has come down from an average 11 per cent in 2002 to 2.66 per cent in June 2005. Top-rated corporate bonds continue to dominate the portfolio.
Top holdings
As on June 30, 2005
Value (Cr)
Net Assets (%)
GoI 2012 6.85%
15.07
18.29
Treasury bills 91-D
9.93
12.06
GoI 2011 12.32%
6.24
7.58
HDFC
5.18
6.29
Grasim Ind
5.17
6.28
Hindalco Ind
4.94
6.00
Essel Mining Ind
4.72
5.73
J & K Bank
4.71
5.72
Indian Oil
4.02
4.88
Citifinancial Consumer Fin
3.02
3.67
HDFC Bank
3.01
3.65
ICICI Securities & Fin
2.78
3.38
IDBI
2.19
2.66
Power Grid Corp
2.02
2.45
Power Finance Corp
1.99
2.42
National Bank Agr. Rur. Devp
1.98
2.40
However, the fund has been expensive. At 1.82 per cent, it's expense ratio is more than the category average of 1.47 per cent. Yet, the fund's performance record makes it one of the better funds in the category.
- Value Research
Returns in % as on July 21, 2005
FMCG funds continued to top equity fund category returns. Over the past 12-month period, FMCG funds have given a return of nearly 80 per cent. This was followed by tax-planning funds at 72 per cent and banking sector funds at 65.63 per cent.
Equity funds Average category returns (%)
1 month
1 year
FMCG
12.22
79.77
Tax Planning
8.94
72.11
Banking
8.8
65.63
Diversified
7.82
60.47
Auto
7.64
52.1
Technology
2.47
49.99
Index
3.75
44.69
Pharma
9.8
44.58
Petroleum
-0.13
25.35
Petroleum sector funds continued to lag at 25.35 per cent. FMCG funds provided the best returns on a weekly basis, too, at 12.22 per cent.
Leaders Monthly income plans
1 month
1 year
SBI Magnum Global Fund
8.82
112.98
Reliance Growth
10.86
99.81
SBI Mag. Sector Umbrella
9.64
98.87
Sundaram Select Midcap
10.23
92.05
SBI Mag. Multiplier Plus
11.21
89.09
Tata Growth Fund
12.82
83.65
Franklin India Prima Fund
10.1
81.47
Alliance Equity Fund
6.93
79.36
HDFC Capital Builder Fund
10.2
72.69
Tata Select Equity Fund
7.79
72.02
The diversified fund category's average returns amounted to 60.47 per cent for the past year, which was better than the benchmark Sensex returns at 46.27 per cent.
Laggards Monthly income plans
1 month
1 year
LIC Equity Fund
8.97
33.08
UTI Primary Equity Fund
2.76
37.66
LIC MF Growth Fund
11.99
38.81
UTI Mastershare
5.47
42.44
Sahara Growth Fund
6.78
43.34
UTI Index Select Fund
4.47
43.61
Deutsche Alpha Equity Fund
3.5
44.23
UTI Masterplus Unit Scheme
5.62
45.19
GIC D MAT
6.58
45.21
Franklin India Bluechip
5.14
45.31
Source: www.mutualfundsindia.com
Overall, nearly 85 per cent of equity funds outperformed the index over the past year. SBI Mutual Fund's Magnum Global Fund was the top performer with an annual return of 112.98 per cent. LIC Equity Fund came in last with returns of 33.08 per cent.
