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Kothari Pioneer Income Builder

Dhirendra Kumar

Kothari Pioneer Income Builder (KPIB) is an open-ended intermediate-term debt fund. The fund has paid a total dividend of 34.75 per cent since inception, including a 12 per cent payout in March 2000. The scheme does not charge any entry or exit load.

The growth plan has given an annualised return of 14.10 per cent since its launch. This plan has nearly tripled its corpus to emerge as a medium-sized fund with a corpus of Rs 3300 million. Through its tenure, the fund has held on to a debt portfolio comprising of corporate debentures, with increasing exposure to gilts since June 1999. The fund has also hiked exposure to AAA-rated securities in the last financial year, which accounted for 87 per cent of the corpus in April 2000.

Interest rates and bond prices tend to move in opposite direction. Also, if interest rates move down, longer-term securities tend to gain more. When Reserve Bank of India brought about a sudden monetary tightening in January 1998, KPIB, like its peers, was caught unawares and witnessed a fall in net asset value (NAV). Subsequently, the fund expected interest rates to harden on the back of economic recovery and fiscal slippage.

Consequently, since June 1998, the fund deployed its growing corpus in short-term securities and thereby held its average maturity below two years. However, the interest rates have broadly been on decline since then and the fund missed out on the gains of being in the longer end of the market. Even, in the event of the public provident fund rate cut in January 2000, the average maturity was stretched to 2.87 years in February, which was revised downwards by March 2000 to 1.74 years on account of dividend. No wonder, the fund could post a gain of 1.25 per cent in April 2000 when interest rates were cut, marginally higher than the sector average of 1.16 per cent.

In recent times, both the market and Kothari Pioneer AMC, expect the interest rates to move up in the medium term. Given this, one would have expected KPIB to retain its current maturity profile, with its cautious style of management. However, with the new manager at helm, the fund has adopted an aggressive strategy and increased its maturity profile to 3.57 years.

This fund is well managed with focus on credit quality. With the recent aggressive stance taken by the fund, it might witness higher returns, but the risks will be higher. However, the advantage of a relatively small portfolio will make the fund more agile in case of interest rate volatility.

Fund Basics
Objective	Size (Rs cr)	NAV: 12/5/2000	Exit Price	Entry Price	Total Returns
Income	330.50	14.63	14.63	14.63	14.10%
Benchmark Comparisons (%)					30/4/2000
	1M	3M	6M	1Yr	3Yr
Fund	1.25	3.70	7.21	13.65	—
I-BEX Total	3.70	5.61	10.98	18.77	15.50
Obj. Avg.	1.16	3.19	8.09	13.70	13.69
Top holdings (30/4/2000)			Rating		% of assets
Ford India			AAA		5.95
GE Capital			AAA		5.10
ICICI			AAA		4.14
Standard Chartered			AAA		3.75
Larsen & Toubro			AAA		2.96
Reliance			AAA		2.83
Reliance Capital			AA+		2.29
Indian Oil			AAA		2.04
Ashok Leyland Finance			AA-		1.84
ABN-Amro			AAA		1.69
Telco			AA+		1.61
Citicorp Finance			AAA (FSO)		1.20
Citibank			unrated		1.19
SAIL			LAAA		1.18
Cholamandalam Finance			MAAA		1.17
Sundaram Finance			MAAA		1.17
Citicorp Maruti			AAA		1.17
Reliance Ind			AAA		1.15
Citicorp Maruti			P1+		1.15
Rabo India Finance			P1+		1.15

Source: Value Research

Mutual Funds

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