May 22: The past six months have been the worst so far for Chola Triple Ace, the open-end income fund from Cholamandalam Cazenove Mutual Fund. The fund has appreciated by just 2.49 per cent in six months (annualised 4.98 per cent) ended April 30, 1998, a little less than the interest rates offered by a savings account from a PSU Bank.Chola Triple Ace seeks regular and stable income through investments in fixed return instruments. The underlying aim is to achieve maximum return while minimising risk. Normally, the fund will have an 80 per cent exposure in debt and balance in money market instruments.
Chola Triple Ace is the first `rated' income fund in the country. The Crisil rating essentially implies that the portfolio holdings of the fund provide a very strong protection against losses from credit defaults.
The rating does no imply that the portfolio provides protection from market risks.
Launched in February, 1997, Chola Triple Ace had a good start. The fund was able to corner high yielding andliquid AAA instruments just before the interest rate crash in April from historic highs.
With the prices of the underlying securities rising again in October for the same reason, the fund appreciated by 17 per cent (annualised 22.7 per cent) in the first nine month since launch.
The fund has been on the downhill since. First, interest rates have been on decline since the launch of the fund.
Despite a one time appreciation, interest accruals were falling. Second, the initial impressive performance and major marketing initiative post-October saw major inflows.
The fund corpus jumped from around Rs 8 crore to over Rs 20 crore. The new money coming in had to be invested in lower yielding instruments.
If the CRR cut during the credit policy in October precipitated the slow down in the rise in the NAV, the RBI decision to raise the bank rates in January came as a bolt from the blue.
Completely invested in traded debt, the fund took one of the hardest hits when the Reserve Bank of India hiked the bankrates by 200 basis points in January this year.
And although RBI rolled back the January 16 measures, prices of the underlying securities have not yet bounced back to their pre January 16 level.
Unless there are any further interest rates gyrations, the fund should settle for a 12-13 per cent return in the next six months. As on April 30, 1998, the weighted average YTM of the portfolio is 13.32 per cent and the portfolio has an average duration of 2.65 years. The fund carries an entry load is 0.5 per cent while exit is at NAV.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
