ICICI Prudential Long Term Plan: High on safety, returns

The fund has consistently outperformed its benchmark according to CRISIL

Launched in January 2010, ICICI Prudential Long Term Plan features in the debt long category of CRISIL Mutual Fund Ranking. The fund has been constantly ranked in the top 30 percentile (CRISIL Fund Rank 1 or 2) in the three quarters ended March 2017. Since its launch, the fund maintained a low duration portfolio (less than 1 year); however, after March 2014, it switched to a long duration portfolio strategy. Over the last three years the fund has maintained an average portfolio duration of 7.42 years.

The fund's primary objective is to generate income through investments in a range of debt and money market instruments of various maturities with a view to maximise income while maintaining the optimum balance of yield, safety and liquidity. Manish Banthia has been managing the fund since September 2012. He was joined by Anuj Tagra in January 2015. The fund had a quarterly average AUM of Rs 2,206 for the June 2017 quarter.

Superior performance

The fund has consistently outperformed its benchmark (CRISIL Composite Bond Fund Index) and the peer set (schemes defined under the debt long category of CRISIL Mutual Fund Ranking March 2017), gaining significant margins across all trailing periods considered.

An investment of Rs 1,000 in the fund on January 20, 2010 would have grown to Rs 2,138 (10.64 per cent CAGR) on July 25, 2017 vis-à-vis Rs 1,877 (8.74 per cent) in the peer group and Rs 1,864 (8.64 per cent) in the benchmark.

Duration management

The fund manager has maintained high duration in the past three years, as mentioned, though it was tad lower than in the latter half of the period considered. Modified duration varied in a wide range of 5.28 to 9.13 years, averaging 7.42 in three years. High duration of the fund bodes well as the interest rate declined during this period, which resulted in higher returns than the benchmark and peers.

Portfolio analysis

In the past three years, the fund has witnessed some shift from government securities (G-secs) to corporate debt. Exposure to G-secs averaged 86 per cent before September 2016, after which exposure to this category was reduced to 61 per cent, on average, and exposure to 'AAA & A1+' (18.60 per cent as of June 2016) and 'AA category & A1' (10.69 per cent) securities increased simultaneously.

The fund has been conservative on the credit risk front in three years; more than 90 per cent of its portfolio was allocated to G-secs and 'AAA & A1+' securities. G-secs comprised 80 per cent of the portfolio, on average, upholding its objective of safety and liquidity. At the same time, it has earned higher returns than its peers by maintaining higher duration and benefit from the falling interest rates.