Chola Triple Ace
Investment Objective: Regular and stable income
Fund manager: Sashi Krishnan |
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Profile |
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Chola Triple Ace (CTA), from the Cholamandalam Mutual Fund stable, is the first AAAf rated (by CRISIL) income fund in the country. The fund was launched in March 1997 and given its AAAf rating and investments in highest safety debt instruments, it is probably one of the safest income funds in the country today as far as credit risk is concerned. With 16.5% growth over the previous year (13.4% since inception) the fund's performance has been very good especially given its 'highest safety' investments where there is little scope to record capital appreciation.
Over the last 3 years, the fund (appreciation option) has given a compounded annual return of over 13%.
As on August 31, 2001, the fund's net assets under management were in excess of Rs 4 bn.
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| Is this fund for you? |
Entry load: Nil
Exit load: Nil
Risk: Low
Return: Low
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With its safety and AAAf rating CTA is ideal for investors who would like to combine the safety of fixed deposits and the liquidity of a mutual fund. With a consistent dividend track record (last years the fund declared Re 1, i.e. 10%) the fund is more tax-efficient (dividends are tax-free in hands of investors). Investors who would like to migrate from FDs to a more liquid and rewarding instrument, can also invest in the fund. Being an income fund investment in CTA is a low-risk, low-return investment.
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| Performance Analyses |
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Peer Table
| INCOME FUNDS |
NAV (Rs) |
1-MTH |
6-MTH |
12-MTH |
INCEP. |
| ZURICH HIGH INT G |
17.3 |
0.9% |
8.5% |
17.1% |
13.1% |
| SUNDARAM BOND A |
16.2 |
1.0% |
8.1% |
17.0% |
13.6% |
| CHOLA TRIPLE G |
17.6 |
0.9% |
8.5% |
16.2% |
13.3% |
| TATA INCOME APP |
17.3 |
0.4% |
7.0% |
13.4% |
13.0% |
| DUNDEE BOND APP |
11.9 |
0.6% |
5.4% |
12.3% |
10.1% |
(Returns over 12 months are annualised)
Portfolio Strategy
Rating and Portfolio Maturity
CTA has over 95% exposure to AAA/P1+/sovereign rated securities, which is in line with its objective of investing in highest safety instruments. The fund has about 1.85% in cash and 2.90% allocation to AA+ (IDBI - 13.75%) paper. Even the IDBI paper will be offloaded ultimately (as per SEBI guidelines it has about 6 months to sell the paper after the downgrading). The fund has about 32% exposure to gilts, which is about what most plain vanilla income funds have in their portfolios right now. Credit risk-wise the fund's portfolio is top-notch, however having about 1/3rd of its portfolio in gilts could expose it to interest rate fluctuations which reflect in government paper more sharply than in corporate paper. In terms of average maturity, the fund is on the lower side, vis-ŕ-vis its peers at 4.19 years.
This indicates that with any turbulence in interest rates, the shorter maturity funds like CTA will witness lower volatility in their net asset values (NAVs) vis-ŕ-vis those with a longer average maturity of say 6-7 years.
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| Outlook |
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CTA has benefited from the run-up in bond prices over the past few months and this has helped the fund register a good performance. However, investors have been cautioned by income fund managers to take a guarded view of the past performance of these funds as bond prices are expected to come down to a more realistic level. As the industry and the Reserve Bank of India (RBI) root for lowering of interest rates, fund managers are going to find it increasingly difficult to match the current performance and we could see a slowdown in NAV growth over the coming months. However, investors must understand that if interest rates are cut, then in that case even FD rates will fall and income funds will still offer comparable, if not higher returns. (Of course, a rate cut in the short term will result in a rise in bond prices as bond yields fall).
Being an income fund, we recommend investment in CTA with a minimum 12-month investment horizon.
If you are in Mumbai and are interested in mutual funds or other investment products, please register here
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