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Suresh Krishnamurthy

FRESH investments in Sundaram Bond Saver may be considered. Its performance record since launch has been impressive, and the portfolio is reasonably placed to deliver above-average returns.

In addition, the sensitivity of the fund to any unanticipated rise in interest rates is also low relative to other income funds. Although, interest rates may not rise immediately, the scope for appreciation in the prices of long-term securities is now limited. At the same time, the reward for extending the duration of investment is now significantly low. Thus, a fund with a relatively lower portfolio duration, such as Sundaram Bond Saver, has better investment appeal.

The fund's relatively higher allocation to corporate securities and bonds of public sector companies is also a positive factor. Because of liquidity, the spreads between government securities and corporate securities could narrow. If that materialises, the fund will be able to take advantage of the appreciation in prices of corporate securities.

However, a fallout of the higher allocation to corporate securities and public sector bonds is that the proportion of thinly traded/non-traded securities is relatively high, at 68 per cent. This could prove a disadvantage if the fund has to face large-scale redemptions.

The medium size of the fund, with assets under management of Rs 557.91 crore, is an advantage in altering the characteristics of the portfolio in a short period. If circumstances require such changes, fresh inflows and investments in government securities can be used to make suitable modifications in a short period.

The size is also sufficient to diversify the portfolio without unduly affecting the quantum of expenses charged to the fund. The fund charges 1.76 per cent of average weekly net assets as expenses to the fund while a peer fund with assets under management of more than Rs 2,500 crore charges 1.61 per cent of average weekly net assets to the fund.

Suitability: The fund's investment style is conservative. However, the higher proportion of thinly/non-traded securities suggests that only investors with the wherewithal to hold investments for more than a year should consider the fund.

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