Fund Call. ICICI Pru Child Care Study Plan -- a safeguard against volatility

Equity markets are scaling new highs and could turn volatile. After a stupendous run, debt markets, too, are likely to lose steam, with the RBI nearing the end of its rate cut cycle.

For investors on the lookout for a relatively safe fund, ICICI Prudential Child Care – Study Plan may be a good bet at this juncture. The fund has had a long track record of outpacing its benchmark and category.

Over three and five years, the fund has outperformed its category by around 5 percentage points. Over the last 10 years it has delivered annual returns of about 13 per cent, a healthy return for a debt-oriented balanced fund. The fund has invested 70-75 per cent of its assets in debt instruments over the last two years. This should help mitigate risk, if equity markets turn volatile. The fund’s equity exposure, on the other hand, should help it rake in returns if the equity market continues to remain upbeat.

The fund’s good exposure to mid-cap stocks (market capitalisation below ₹10,000 crore) should also help boost returns as these stocks continue to hog the limelight. Over the past two years, the fund’s exposure to mid- and small-caps has been 45-65 per cent of equity portfolio. Since the fund is targeted towards providing for children’s education, exit loads are steep, at 3, 2 and 1 per cent for exits before one, two and three years, respectively. Investments made in minors’ names with ‘lock-in’ option will be locked for three years or till the minor turns 18, whichever is later.

The fund has been actively managing its debt portfolio.

In the upbeat 2014 market, when both equity and debt rallied smartly, the fund’s deft calls in debt helped it rake in robust 32 per cent returns. The fund had upped its maturity from around six years in the beginning of that year all the way up to 10 years.

The fund’s average maturity of 9-11 years through most of 2016 also helped it make the most of the sudden rally in bonds.

With rate cuts more or less coming to an end, rally in bonds is likely to be limited from hereon. The fund has trimmed its maturity to about four years, shielding investors from a possible volatility in bond markets in the coming year.

The fund also carries a low credit risk, given predominant exposure to government securities and AAA rated bonds. Up until recently, the fund held 40-45 per cent of its portfolio in G-Secs.

Over the last couple of months, however, the fund has upped its exposure to AAA rated corporate bonds. It has also taken on some exposure to AA rated bond issued by Hindalco, though low at about 7-8 per cent of total portfolio. The metals player has been benefiting from recovery in aluminium prices and global demand.

On the equity side, the fund has been a bit aggressive, investing mainly in mid and small-caps over the years. This does make it a tad riskier than other funds, but helps spice up returns, too.

The fund has considerably trimmed its exposure to mid and small-caps in the last couple of months, which lends comfort. From over 45 per cent last year, equity holdings in these stocks are down to 30 per cent.

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