Don't want to risk your money?

The small-sized UTI Variable Investment Scheme is a good mutual fund for those who want to achieve their goals slowly but steadily over the long-term.

What makes this fund different is the fact that it is an asset-allocation fund. This means it is not a debt or equity fund. It has the flexibility to invest its entire corpus (total amount of money invested in a scheme) in either  debt or equity or both. The decision to invest is linked to the level of the Sensex. In other funds, it is not dependent on the fund manager.

Let's understand what this means.

The fund currently has a set a band of 7,150 to 9,900 for the Sensex level. This band is fixed upfront every single year and is applicable for that year only.

The allocation to equities will vary between 70% to 90% at the lower limit of this band and would be reduced to 10% to 30% if it crosses the upper limit.

So if the Sensex is more towards the lower end of the band (7,150 levels), then the fund will invest even up to 90% in shares. But as the Sensex goes higher, the fund manager keeps selling shares. As it touches the upper limit (around 9000), then the fund manager will just keep around 10% to 30% of his total investments in shares.

So as the market rises, shares are sold and profits are made. This money is then transferred to safer debt instruments. When the markets fall, money is then again invested in equity.

This fund is excellent for conservative investors who do not want to expose themselves to too much risk.

In May, when the market collapsed, the fund was able to restrict its losses that month to just 3.68%. This was because it reduced its equity exposure from 40% in January 2006 to 26% by the end of April. As the Sensex kept rising, this fund kept selling.

Let's look at the returns on May 31, 2006.

The fund started off well in 2003 but the next year was not that great as it could manage returns of only 7.13%. This is also because it kept a large portion in cash. In 2005, the fund delivered returns of 17.68%.

To sum it up, invest in this fund if you are looking for a conservative investment style, moderate returns and want to get rid of the task of deciding the right mix of debt and equity.

Here's how this fund has fared in comparison with other similar funds. The data is for the growth schemes (meaning no dividend is declared) and is as on June 19, 2006.

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).