An ideal choice for volatile markets

This debt-oriented fund has been a steady performer over the years

After the initial exuberance, equity markets have turned choppy over the past two months. Even debt markets have been volatile over the past six months.

For investors looking for a relatively safe bet, ICICI Prudential Child Care Study Plan — a debt-oriented mutual fund — fits the bill.

The fund invests 75-80 per cent of its portfolio in debt instruments, mostly G-secs and high-rated corporate bonds.

It has been actively managing its duration, thus tiding over rate cycles well.

On the equity side, the fund invests predominantly in large-cap stocks. This pegs down its risk compared to its peer SBI Magnum Children Benefit Plan, which has a higher penchant for mid-cap stocks.

ICICI Prudential Child Care Study Plan has beaten its category returns over three-, five- and ten-year period by 1-5 percentage points, delivering around 9 per cent, 15 per cent and 12 per cent, respectively.

Its one-year performance is a tad lower than the category, possibly on account of maintaining high maturity in its debt portfolio through 2017. Volatile debt markets appear to have impacted the returns.

But near-term blips aside, the fund’s performance over its 17-year tenure has been sound. Since its launch in 2001, the fund has delivered an annual return of 12.4 per cent. Conservative investors with a long-term horizon can invest in the fund.

Since the fund is targeted towards providing for children’s education, exit loads are 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.

Risk-mitigating

ICICI Prudential Child Care Study plan takes a relatively conservative bet, both on equity and debt. Within equity, the fund has held upwards of 70 per cent of portfolio in safer large-caps (stocks with market capitalisation of over ₹10,000 crore) over the past two years. On the other hand, SBI Magnum Children Benefit, which sports double-digit returns over one- and three-year period, has on an average invested a far higher — 40-60 per cent of its equity portfolio (even as high as 70-80 per cent at times) — in mid-cap stocks.

On the debt side too, ICICI Prudential Child Care invests mostly in safe government securities and AAA corporate bonds, thus keeping the credit risk at bay when compared to its peers.

Riding cycles

The fund has also been actively managing its debt portfolio. Bond markets had turned volatile in the latter part of 2017. But thanks to the Centre recently lowering the borrowing programme for the first half of 2018-19, and the RBI bringing down its inflation forecast, yields on 10-year G-secs have fallen by 30 basis points over the past month (it recently inched up again).

After maintaining a higher eight to nine years maturity through 2017, the fund lowered its maturity to 3.8 years in March, possibly to cap losses. This should help it tide over volatile bond markets.

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