Since launch, the bond fund has given a return of 13.35 per cent while the returns in the last one year are 12.93 per cent. Currently, the fund has a 8 per cent exposure to government securities while 20 per cent is in money market instruments.

Corporate bonds and debentures take the largest chunk of investments at 54 per cent while financial institutions and banks are a distant second and account for 18 per cent of the bond fund's investments.

``Despite the presence of monthly income plans with assured returns, the UTI bond fund has been successful in positioning itself as a more liquid option with better returns. While MIPs have assured yearly returns in the band of 11-12 per cent, the bond fund has generated one-year return of around 13 per cent,'' says an industry observer.

ICICI continues to be the top holding of the fund and accounts for 7.52 per cent of the NAV. However, the weightage of ICICI in the NAV has come down sharply from 11.92 per cent earlier this year. While Reliance continues to hold the second slot, its share in the NAV has also gone down from 8.10 per cent to 6.37 per cent.

This can be attributed to the fund not increasing its exposure to Reliance or ICICI paper even though it has grown in size from Rs 709 crore to Rs 1015 crore. The possibility of the fund selling a part of these holdings is remote. The fund has added the securities of Ashok Leyland, Bombay Dyeing and Tata Finance. Currently, top 24 holdings account for 55 per cent of the total corpus.

Unlike its peers, UTI Bond Fund does not have a dividend plan for income distribution. Thus, the garowth in assets under management is reflected through the growth in NAV. Instead, the fund offers a monthly withdrawal plan to those investors who put in a minimum of Rs 30,000 (under a folio) for at least six months. While there is no entry load, there is an exit load of 1.5 per cent in case investments are withdrawn within six months. The units of the scheme are available for sale and repurchase across 100 centres.

UTI Bond Fund is one of the three open-end bond funds to have crossed the Rs 1000-crore mark, the other two being Birla Income Plus and Prudential-ICICI Income Plan. Despite the tax-free status to open-end equity funds and a 11 per cent dividend tax for debt funds, the latter have seen their assets gallop in recent times.

``Big investors are putting their money in debt funds since they can earn a tax free dividend and make a part of their investments tax-free without exposing themselves to the gyrations of equities,'' says an analyst.While UTI Bond Fund has shown a stupendous growth, analysts differ on whether the emergence of the bond fund will lead to a phase out of monthly income plans.

``MIP has a strong brand equity with a large set of investors who need an assured return. This has been highlighted in the recent MIP which mobilised close to Rs 1200 crore despite assuring a payout for only the first year. Clearly, UTI cannot do away with such a highly successful scheme especially when money is not coming into its equity funds,'' says an analyst. ``When the entire industry has moved away from assured return products.

UTI, being the largest player should put an end to the practice of assuring returns even for one year. UTI should aggressively sell the bond fund as an alternative to monthly income plans to its MIP investors,'' points out another industry observer.