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Reliance Income Fund

Dhirendra Kumar

Reliance Income is a medium term debt fund launched in December 1997. A no load fund, it offers dividend on varying frequency – monthly, quarterly, half-yearly and annual. Under the annual option the fund has paid three dividends of 15%, 11.002% and 9.5% in the three financial years since 1998-99.

FUND BASICS   Objective    Size (Cr)    NAV: 20/04/2001    Exit Price    Entry Price    Total Return   Income   232.90   14.66   14.66   14.66   12.23%

For a fund, which sought to optimise returns with minimal levels of risk, the focus on credit quality has come rather late in the day. Despite over three years of history under its belt, the fund is open to analysis since November 1999, for want of portfolio disclosure. From a mere Rs 96 crore in 1999, the fund has more than doubled in size. With a growing corpus, the fund changed its preference across portfolio quality.

From a substantial investment in AA and un-rated papers of 48% in March 2000, the exposure stands reduced to 17.67% in April 2000. Moving away from double A instruments - which bring in higher returns with their lower credit quality, the fund has changed tack by parking its growing asset base in quality instruments. The AAA rated instruments, at 82.33% of the corpus, offer both liquidity and quality, albeit with a lower coupon income. This growing focus on quality has also seen the fund augment its exposure to sovereign bonds.

Benchmark Comparisons (%)      1M    3M    6M    1Yr    3Yr   Fund   1.05   3.18   7.02   10.96   12.20   JP Morgan G-Sec Index   1.16   3.89   11.09   11.21   14.46   Obj. Avg.   0.91   3.31   7.56   10.62   12.15

Besides credit and liquidity concerns, movement of interest rates plays an important part in a debt fund’s performance. With bonds moving inversely with the changes in interest rates, the fund has sought to minimise this risk by staying at the lower end of the maturity spectrum. Thus, the maturity profile ranged between 2.5-3.5 years in a volatile 2000. With this strategy the fund has offered a return of 12.18 % against a category average of 12.15% for the two years ended April 20, 2001.

With a return since launch of 12.23%, the active management aided by its small corpus, is yet to be reflected in the returns. Failing to leverage the advantage of its medium-sized corpus, Reliance Income has emerged an average performer.

Top Holdings (18/04/2001)      % of Assets   GOI 2008   13.96   SBI   7.12   IDBI   6.66   I C I C I   6.13   Citicorp Maruti Finance   5.60   Larsen & Toubro   4.50   GE Countrywide   4.31   H D F C Bank   4.30   Associates India Financial   3.95   Peoples Financial Services   2.45   GOI 2006   2.33   IL&FS   2.30   GOI 2005   2.29   HDFC   2.25   GOI 2012   2.24

Source: Value Research

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