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Alliance GSF Long Term

Dhirendra Kumar

Launched in October 1999, Alliance GSF Long Term seeks investments in government securities of medium to long term. Entry and exit out of the fund is on a no-load basis. Under its half yearly dividend option, the fund has paid three dividends of 6.1, 2.1 and 2.3 per cent respectively.

FUND BASICS   Objective    Size (Cr)    NAV: 23/05/2001    Exit Price    Entry Price    Total Return   Gilt Med Term   7.80   1184.29   1184.29   1184.29   11.31%

The fund invests in central and state government securities and treasury bills. With this investment focus, the fund offers a portfolio of high credit quality, for these instruments carry sovereign backing. The active market interest in these instruments ensures that they also offer high liquidity, which gives room to change portfolio strategy.

The key risk element in a government securities fund is the interest rate risk, as bonds respond sharply to changes in interest rate outlook. These instruments move inversely to changes in interest rate -- gaining value in times of a rate cut and shedding value with a hike.

Benchmark Comparisons (%) (18/05/2001)      1M    3M    6M    1Yr    3Yr   Fund   1.71   3.53   7.03   8.02   -   JP Mor G-sec   2.25   3.97   11.63   13.15   15.32   Obj. Avg.   1.71   3.53   7.03   8.02   -

In its initial spell, the fund was largely right with its call on interest rates, promptly realigning with the changes in the interest rate outlook. However, the undoing came when the fund failed to take the right view of the softening since October 2000. From then on, the fund has held a lower maturity portfolio at close to 2 years even as the charter allows it to stretch up to 9 years. As the fund chose to realign its maturity in April 2001, it has been a rather belated awakening, for the fund has lost out on the sharp rally earlier in this calendar. Given this, it is not surprising to find the fund in the bottom of the performance charts. The fund has posted a one-year return of just 8.02 per cent, trailing its peers who have posted an average of 12.91 per cent.

While Alliance GSF Long Term offers a bundle of creditworthy stocks, with the fund going astray on its interest rate outlook, it has turned out to be a below average performer.

Top Holdings (30/04/2001)      Value (Cr)    % of Assets   GOI 2008   5.42   69.49   GOI 2004   1.09   13.94

Source: Value Research

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