Fresh investments can be considered in the units of Canara Robeco Income Fund (CRI), a pure debt fund that mostly invests in securities with maturity of over a year. CRI has delivered superior performance over the last three- and five-year periods, despite slipping somewhat in performance lately. Over a three-year period, CRI registered a 13.5 per cent return, against the category average of 6.5 per cent.

Over the last one year, income funds, in general underperformed the debt category when compared with short-term debt funds. The rise in yields over this period led to fall in prices for the longer-term securities, affecting their portfolios. However, the fund consistently beat its benchmark Crisil Composite Bond Fund Index. The fund's one-year return stood at 6.4 per cent, against the benchmark's 5.1 per cent.

Given that the elevated short-term rates may come off their highs and the longer-term rates may hover at the current levels, the risk of bond prices falling may be less severe going forward, which may mean a better show by income funds.

Suitability : CRI is suitable for investors who prefer capital protection over higher returns, as most of the fund's investments are in securities of the highest quality credit rating. Over a five-year period, the fund has notched up 10.3 per cent return, making it the best performer in its category. This performance is also superior to returns from many fixed deposit options.

Investors would do well to hold the fund over a longer period o iron out short term blips related to interest rate movement. A dividend payout option would also help lock in to returns during rallying periods and also provide cash flow. The fund has been consistent in dividend payouts in the last 2-3 years although there is no guarantee. Compared with traditional debt options this fund is suitable for investors in the higher tax bracket.

Portfolio : As of February 2011, 37 per cent of the CRI's portfolio was long-term (corporate debentures and gilt securities) while the rest was invested in money market instruments and other short-term options. Active churning of portfolio did not help much given the broad-based underperformance of long-dated securities. Gilt securities (27 per cent of the total portfolio) that the fund invested in have more than nine years of residual maturity. As the yields are unlikely to move sharply for a portfolio with such long maturity investing in long-dated maturity may give decent return going forward. Experts expect the current 10-year yield to remain range-bound for some time. Future movement is contingent on fiscal deficit and borrowing targets.

Performance : On a one year rolling return basis, the fund has outperformed the benchmark 76 per cent of the time suggesting consistency.

While the fund has been active enough to take advantage of varying spreads between corporate and gilt securities, this also makes it subject to more volatility. Corporate debt securities lack the kind of active market that gilt typically enjoy. To sum up, active management worked in favour of the fund during the credit crunch and also during the ensuing monetary easing and falling interest rate scenario.

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