The RBI’s monetary policy review was the much awaited event for debt markets this month. Investors remained cautious and the government bond yields were more or less muted in the first half of the month on concerns over the expected move by central bank to curb inflation. However, the bond yields rose by the end of the month, after the central bank raised CRR by higher-than-expected and held other key rates steady. The 10-year government bond yield ended higher by 5 bps to 7.73% at the end of the month.
At the monetary policy review, the central bank revised its growth projections to 7.5%, from 6% supported by better-than-expected industrial production and steady improvement in the private consumption. However, inflation still remains a cause of concern. After declining for three consecutive weeks, food price inflation rose to 17.56% for the week ended January 23, as compared to 17.4% in the previous week. High food prices have driven up the wholesale price index based inflation to 7.31% in December from 4.78% in November. The RBI revised its inflationary projections from 6.5% mentioned in its previous monetary policy to 8.5% for March 2010.
In order to merit funds’ long-term performance, they have been ranked based on their one-year Morningstar risk-adjusted return for this review.
Debt Category Performance
Liquid
The Morningstar India Liquid fund category registered 4.42% return for one-year period ended January 2010. This category consists of funds with average maturities upto 91 days. Out of 24 funds considered for analysis, 15 funds outperformed their peers. In terms of one-year risk-adjusted return, LICMF Liquid registered highest return. On an absolute basis, the fund posted 5.5% return.
Ultra Short Bond
The ultra short bond category with funds consisting of average maturities over 91 days but less than one year, posted 5.3% return. Out of 20 funds selected, 10 funds beat the category average. LICMF Savings Plus had the best risk-adjusted performance. The fund delivered 6.0% return on an absolute basis.
Short-Term Bond
During the one-year period, the short-term bond category with residual maturities between one- to three-years, posted 6.6% return. Out of 18 funds considered, 11 funds outperformed their peers. Templeton India Short Term Income fared the best in terms of risk-adjusted return. The fund returned 11.4% for one-year period through January.
Intermediate Bond
This category includes funds with maturities between three- to seven-years and registered 4.2% return, during the one-year period ended January. Out of 20 funds shortlisted, 10 funds beat the category average. Canara Robeco Income delivered the largest risk-adjusted return. On an absolute basis, the fund registered 7.3% return.
Short Government
Short government funds invest in government securities with one- to three-year maturities. For one-year period, the category delivered marginal 1.84% return. In terms of risk-adjusted performance, Templeton India Govt. Securities Treasury posted the highest return. On an absolute basis, the fund registered 3.1% return.
Intermediate Government
The intermediate government bond category includes funds with residual maturities between three- to seven-years and generated 0.83% returns. Out of 13 funds shortlisted for analysis, four funds beat their category peers. The best performer in this category was Birla Sun Life Govt Securities Long Term in terms of risk-adjusted performance. The fund posted 20.9% return for one-year period through January 2010.
Long Government
Long government funds invest in government securities with average maturities of more than seven years. This category generated -0.77% return during the one-year period. Out of 9 funds selected for analysis, only four funds outperformed their peers. Templeton India Government Securities Long Term fared the best in terms of risk-adjusted performance. On an absolute basis, the fund delivered 2.2% return.
Note: For the purpose of this analysis, funds have been ranked based on their one-year Morningstar risk-adjusted return; only growth options have been considered. Further, only funds with AUM of more than 20% of the average category AUM as on December 2009 have been considered.