Match Investment Horizon with respective Asset Class : Income Scheme : 1 Year Rolling Returns Analysis
Kindly refer to my note dated April 15’2008 wherein we had given hold & add strategy in Income schemes when inflation had started galloping & thanks to that interest rates were inching up on regular basis. Those who had invested in Income schemes in the months of January & February 2008 had started posting negative returns & were in a dilemma as to whether they should cut their losses & move forward or hold based on MSJ Capital’s analysis of one year rolling returns which had not gone negative; (except for those investments made between October’2003 & April’2004 & the same, if held for one year thereafter). The said analysis was based on one scheme of Templeton IBA.
To figure out whether the same holds true for other schemes as well & that also till date, I have done one year rolling return analysis of some more Income schemes of different AMCs & come to the same conclusion. What this analysis shows is that if one invests in Income Schemes with minimum one year investment horizon, they have not gone negative (except for investments made between October’2003 to April’2004 & held for one year thereafter. Only these observations had gone negative marginally as interest rates had jumped from a low of 5% to 7% over one year with accruals also on the lower side at around 5-6% p.a.)
| Birla Sun Life Income Plus | Birla Sun Life Income Fund | |||
| Since 22-Jan-96 to 29-Sep-09 | Since 20-Mar-97 to 29-Sep-09 | |||
| Rolling Returns in % p.a. |
1 Year |
Rolling Returns in % p.a. |
1 Year |
|
| No of Observations |
3150 |
No of Observations |
2850 |
|
| Highest |
24.93% |
Highest |
25.04% |
|
| Lowest |
-2.38% |
Lowest |
-1.76% |
|
| Average |
10.91% |
Average |
10.15% |
|
| No of Negative Obs |
150 |
No of Negative Obs |
58 |
|
| HDFC Income Fund | RELIANCE INCOME FUND | |||
| Since 11-Sep-00 to 29-Sep-09 | Since 1-Jan-98 to 29-Sep-09 | |||
| Rolling Returns in % p.a. |
1 Year |
Rolling Returns in % p.a. |
1 Year |
|
| No of Observations |
2110 |
No of Observations |
3308 |
|
| Highest |
19.02% |
Highest |
22.33% |
|
| Lowest |
-1.43% |
Lowest |
0.43% |
|
| Average |
8.05% |
Average |
9.62% |
|
| No of Negative Obs |
84 |
No of Negative Obs |
0 |
|
| ICICI Prudential Income Plan | ICICI Prudential Institutional Income Plan | |||
| Since 9-Jul-98 to 29-Sep-09 | Since 17-Mar-03 to 29-Sep-09 | |||
| Rolling Returns in % p.a. |
1 Year |
Rolling Returns in % p.a. |
1 Year |
|
| No of Observations |
2508 |
No of Observations |
1359 |
|
| Highest |
26.60% |
Highest |
26.92% |
|
| Lowest |
-1.91% |
Lowest |
-1.34% |
|
| Average |
10.09% |
Average |
8.07% |
|
| No of Negative Obs |
88 |
No of Negative Obs |
35 |
|
As can be seen from above, the number of observations range from 1400 to 3400 based on which scheme was launched when. Some of the schemes’ observations have started from as early as January 1996. Hence, a) number of schemes & b) number of observations justify assuming that Income schemes if held for more than a year should generally not generate negative returns in your portfolios.
Rolling Returns - Income Funds Jan 97 - Sep 09
Rolling Returns - Income Funds Jun 04-Dec 05
This analysis is done just to make the investors understand the importance of matching their investment horizon with the time required to hold the scheme under that asset class & not mismatch the two. If one invests in say Income schemes with less than one year investment horizon, it is possible that the said asset class may generate negative returns. However, based on historical data one can safely assume that if held for more than a year, one may not see negative returns under this asset class.
I am personally of the view that if one gets an opportunity of investing Income/GILT schemes on 10 year breaching 7.50% between now & March 2010 with fears of RBI tinkering either CRR or Policy rates or both by March’2010, one should grab that opportunity with one year investment horizon.
Next year’s Fiscal numbers should be better for following reasons: a) lower subsidy numbers, b) hopefully no more fiscal stimulus packages ( on the contrary some of the Fiscal Stimulus like reduction in service tax & other excise duties might be reversed thereby enhancing revenue collection) & c) with GDP growth rate between 6 & 7%, revenue collections should improve. Also going into next Financial Year, lean credit season will set in post April’2010 which should further aid the debt market story. Hence, if one invests at the longer end at an appropriate time as mentioned above & holds it for one year thereafter, one should be able to generate decent returns in the said asset class.
Comments
Hi,
Thanks for the information. But could you refrain from using red color as it is a strain on the eyes. Please dont mind.
The red font was a formatting mistake.
Thanks for letting us know.
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