M.V.S. Santosh Kumar
Investors can consider holding on to units of Birla Sun Life (BSL) Monthly Income, as the fund has beaten its benchmark consistently, over one-, three- and five-year periods.
One of the few monthly income funds with a track record of more than 10 years, the fund has made good its lack-lustre performance in 2007, by demonstrating improved performance in the last two years. Over a three-year period the fund delivered a 7.7 per cent annualised return, against a 6 per cent return clocked by its benchmark (CRISIL MIP Blended Index).
While the performance of the fund improved over the last couple of years, fresh investments need not be considered at this juncture as they are better performing funds in the MIP category. Even as the fund beat its benchmark 72 per cent of the time in the last three years (on a rolling return basis), it continues to lag funds such as HDFC MIP, Reliance MIP.
Suitability: BSL Monthly Income invests a maximum of 15 per cent in equity instruments; this enables it to deliver excess returns in addition to the fixed income returns.
However, equity exposure poses the risk of pulling down the debt returns during stock market corrections. For instance, the fund lost almost nine per cent of its NAV value over a one-year holding period during the October 2008 lows.
BSL Monthly Income is suitable for fixed Income investors who intend to make inflation beating returns. Though it failed to beat the scorching inflation in the last one year, its performance was better than pure debt funds and may continue to be so, thanks to its exposure to equity markets. Given that the fund does not generate stellar returns, investors can opt for dividend option to lower the risks.
As the tight liquidity scenario may continue even as the RBI's liquidity easing measures are in place, income plans are well-positioned to take advantage of any short-term rate hikes. High yields on short-term instruments may continue for some time until companies, banks and financing companies start raising longer-term resources at higher rates.
BSL Monthly Income has almost sixty per cent of the assets in money market instruments, cash and current assets (inclusive of cash) which allows it take advantage of the liquidity squeeze and also protect it against the interest rate risk. This kind of short-term yield focus has been the fund's strategy over the last year, even as the payoffs have only started from second half of 2010.
In 2009, the fund focussed on corporate bonds, which rallied on the back of improved business confidence shrinking the corporate spreads. The strong equity market rally helped the fund make up for lost returns during the previous year.
Performance: BSL Monthly Income's one year return of 7.9 per cent beats the MIP category average of 7.25 per cent.
As of November 2010, the fund holds 11.9 per cent of assets in equity, predominantly mid-cap stocks.
While the mid-cap focus led to a surge in NAVs in 2010, from November 2010, underperformance of these stocks took a toll on the fund's returns.