Quality Conscious

DSPML Bond Fund is best suited for aggressive long-term investors

Background: Launched in April 1997, the fund has paid an aggregate dividend of 55.1 per cent. It was among the first one to park money in gilts in 1998.

Performance: DSPML Bond's annual returns ranked in the upper echelons through 2000 and 2001. After lagging its peers in 1998 and 1999, the fund benefitted from its high-quality focus. In 2000, the fund manager's huge interest rate bets met with success.

For instance, he increased portfolio maturity to as high as 6.82 years before the rate cut of in April. And within three months, following the rate hike, the maturity was pruned to 2.12 years. Thus, the fund gained 11.09 per cent through the year beating 70 per cent of its peers.

DSPML bond was slightly affected in Q1 of 2001 when bank rate was reduced twice in quick successions, as the portfolio was spread over lower maturity papers.

However, the fund made up for it during the October rate cut last year. It stretched its maturity ahead of peers, and, consequently, the fund was placed in the top 15 per cent of the category in 2001. On a year-to-date basis through June 14, 2002, the fund still ranks in the category's top 60 per cent.

Portfolio: This fund -- which has strong inclination for gilts -- unlike many of its peers takes on little credit risk by sticking to high-quality bonds.

To benefit from the rate cut this fund increased its gilt allocation to a high 48.43 per cent in February 2001. By opting for AAA bonds (currently 34per cent), this fund safely stays clear of any credit risk.

That part, the fund's current sizable allocation to GOI securities (39 per cent) also adds to its appeal. Also, the fund's recent average maturity of 4.63 years is also in line with that of its peers - neither too high nor too low.

Outlook: Although the fund takes big interest rate bets, the fund remains a solid bet for aggressive long-term investors who can bear some volatility.