The Hindu Business Line : Birla Sun Life Asset Allocation: Hold

Investors can retain their units in Birla Sun Life Asset Allocation Fund - Moderate Plan. This open-end fund-of-funds (a fund that invest in other mutual fund schemes) not only bettered its benchmark Crisil Balanced Index’s performance but also contained declines better than equity-based balanced funds over the last year. The fund has also established a comprehensible trend of performing well in difficult market conditions. Its three-year return of 6.5 per cent compounded annually over the last three years outperformed the diversified-fund category average of -1.5 per cent.

However, the plan’s historical chart hints that its performance during sharp rallies is considerably below average compared to equity-category returns, suggesting that its show may not be consistently superior across market cycles. In other words, the fund appears to primarily provide a reasonable hedge against protracted market declines.

Suitability: With very little expectation of a quick revival in the stock market, investors can stay with the fund as it could provide some balance to a flagging equity portfolio.

As most fund-of-funds (F-o-Fs) barring a few, invest in schemes from the same AMC, investors may lose out on benefits of well-managed funds from other fund houses. However, the key benefit of an F-o-F is its diversification. An investor can hold a basket of funds that undergo tactical shifts, without the hassle of balancing the portfolio and incurring recurring entry/exit loads.

Performance: Over the last year, Birla’s moderate plan has declined by 26 per cent as against its benchmark return of -37 per cent. Its performance was also superior to similar F-O-Fs which have declined between 26-51 per cent over a similar period.

Equity returns over a three year period have seen a sharp meltdown as a result of the 2008 correction. The Sensex for instance sports a dismal 0.8 per cent return, while equity diversified funds category average return is even worse at -1.5 per cent.

The Moderate Plan has however returned a positive 6.5 per cent. This compares well with the returns of the best equity-oriented balanced fund. Clearly, the fund’s quick shift to debt in the correction of 2006, 2007 and now have aided the fund create a cushion against equity declines.

The fund’s equity portfolio appears to hold a value strategy what with higher exposures to sectors such as IT and financial services, that hold attractively valued stocks. The fund’s debt portfolio also attracts attention for its strategic mix of short-term, income and bond funds from the Birla stable.

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