Templeton India Short term Income Plan

This one has featured in our recommended funds list for over a year. Launched in 2002, it is the largest in this category with a corpus of INR 5228 crore as of May 2012 and a consistent performer over a period of 3-5 years. This fund is known to take major exposure to corporate debt and PTCs and since January 2011 has maintained an average exposure of 65% to such instruments.

However, during this period, the concentration of PTCs in the portfolio has dropped from 36% in January 2011 to almost 10% in May 2012. This is the first time in 2 years that the exposure to this instrument has dropped to such a low level. The fund also invests in CDs and CPs. As far as the credit quality of the portfolio is concerned, the fund manager on an average keeps more than 50% of the assets in AAA, AA+ ,AA,P1+ and A1+ papers while the rest is distributed between below AA papers. We believe that this minimal credit risk that the fund undertakes gives the extra punch to the portfolio. The average maturity of the portfolio is normally in the range of 1 year.

We recommend this fund to those who have an appetite for risk and can stay invested for a time horizon of 9-15 months. The expertise that Templeton's fund management team has shown in managing funds, by taking a little bit of credit risk, gives us the confidence in making this recommendation.

However, investors should note that this fund has an exit load up to nine months and has one of the highest expense ratios in the short-term category. Having said that, none of this has deterred the fund from delivering a superb performance not only when there was clarity on the fixed income side but also during uncertain phases.

UTI Short Term Income Fund

Having been around for 9 years, it has made a mark as being a consistent performer over the last 5 years. The impressive performance delivered by the fund in the last 1 year was an eye opener. When the RBI was in a hawkish mode and fund houses mostly maintained an average maturity of 1 year in their short-term funds, this one continued with 2 years.

Despite this, the fund actually was able to outperform some of its peers which aggressively reduced their average maturity in line with RBI's stance. The active management of the fund, as and when opportunity arises, could be the reason for this outperformance. A perusal of the portfolio since January 2011 shows that it has more than 60% concentrated into corporate debt and the rest is allocated between CDs and CPs with a very small exposure into PSU bonds. This fund also does not take any credit risks and is invested in the best quality papers.

In the recent past, there has been huge volatility in its corpus which has actually reduced from INR 1146 crore as of December 2010 to INR 142 crore as of June 2011 and stands at INR 417 crore as of March 2012. This could be the reason for the revision in the exit load of this fund to 0.75% upto 365 days. There has been a change of guard in fund management in February 2012 and Amandeep Chopra, an old hand in UTI and a seasoned player in fixed income, has taken over the fund.

We are of the view that Chopra with his vast experience in the bond market will be able to carry on the good work started by his predecessor. We advise this fund to all our conservative investors who are risk averse but have the patience to wait for at least a year.

In conclusion....

We at fundsupermart.com advise investors to look at any of our recommended short-term funds and park their surplus depending on the risk appetite and time horizon. We believe that since we are in a situation where inflation continues to be a concern for the RBI and there is a lot of uncertainty on the macro front, the RBI will not be in a hurry to soften its policy stance. In this scenario, investors should consider allocating 10-15% of their portfolio in any of these recommended funds and reap the benefits after a year.

Author : Dr. Renu Pothen. Research Head, Fundsupermart.com

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DISCLAIMER

iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice.