Despite limited exposure to long-term gilt, IDFC SSI Medium Term requires some risk appetite on your part. For one, about a fourth of the portfolio is exposed to gilt. Any volatility in this segment or wrong forecast on interest rates can hurt fund returns.  Two, the fund has a portfolio maturity of three-plus years. Instruments with longer maturity are more sensitive to interest rate movements. Three, the fund has a high proportion (60 per cent) in corporate bonds. While these have a rating of AA+ and above, they are not free of risks and do not have any sovereign guarantee.Overall, the fund will have a higher degree of interest rate risk, although it exhibits lower credit risk.The fund is suitable for investors with a time horizon of over two years. Ideally, we would prefer this fund to be part of your long-term portfolio. The fund has an exit load if you redeem within 9 months.

                                                                                                                Performance

In the past year, quite a few income funds have managed 11-13 per cent one-year returns compared with IDFC SSI Medium Term's 10.2 per cent. Templeton India Income Builder is an example.

But the latter has managed this by not only donning a longer maturity profile but having instruments with slightly lower credit ratings compared with IDFC SSI Medium Term. That means those funds take on both interest rate risk and credit quality risk to generate higher returns.

On a rolling return basis though, IDFC SSI Medium Term's  average one-year return (over three years) of 8.6 per cent is higher than some of the current chart toppers. This suggests that the current out-performance by peers may not always be sustained.

IDFC SSI Medium Term can be expected to benefit from any gilt rally that may happen before March 2013 if interest rate cuts happen.

Portfolio

The fund currently has 24 per cent of its assets in government bonds and 60 per cent in corporate bonds.  The rest are in commercial papers and other short-term debt.

A good 86 per cent of the instruments held are AAA-rated. A number of  corporate bonds are from PSUs such as REC and PFC, besides other NBFCs such as L&T Finance and Mahindra & Mahindra Financial Services. The fund is managed by Mr Anupam Joshi.