A defensive portfolio of lower maturity securities, coupled with an expense ratio amongst the lowest in its category, makes it quite a decent pick.
Historically, since launch in May 2007, the fund has been an average performer. The run on mutual funds in 2008 took its toll. That year turned out to be particularly bad, since its assets under management (AUM) shrunk by a whopping 89 per cent. It ended the year with negative returns, of minus 4.12 per cent.
In 2009, the fund did manage to generate positive returns (4.52 per cent), but was still below the category average. However, worth noting is that the reason for the fund's poor performances in the past two years has been its defensive strategy. The fund varies its maturity according to market situations, to generate higher returns. In the past few years or so, it has kept its portfolio maturity on the lower side, due to low policy rate and expectations of a rise in it. The average maturity of the fund over the past year has been near 2.75 months. This strategy has hurt the fund dearly.
On the portfolio front, the fund invests around 90 per cent of its assets in paper issued by banks and financial companies. Though it invests primarily in the highest rated papers, investing almost all of its assets in only one sector (financial services) exposes the fund to sector-specific risks. Among the instruments, it mainly buys shorter tenure papers like commercial paper (CP) and certificates of deposit (CD) As on August 31, the fund had 91 per cent invested in CDs, with the balance largely in CP and GOI Securities (G-Secs).
