Birla Sun Life 95 Fund - INVEST

Thanks to the good show by debt instruments, balanced funds have matched the returns of pure equity funds in recent times. Take the Birla Sun Life Balanced Fund. Its three- and five-year returns stand at 25 and 12 per cent, respectively.

Birla Frontline Equity Fund, a pure equity product from the same house, managed 26 and 11 per cent for three- and five-year periods. With interest rates, particularly on corporate bonds, likely to remain attractive for some more time, investing in balanced funds makes sense.They may continue to offer a better reward for lower risks over the next year or so. Birla Sun Life 95 Fund is among the good choices for investors seeking a balanced fund.

High on large-cap equity

Birla Sun Life 95 is among the more aggressive balanced funds in operation today. For one, it has a near 70 per cent exposure to stocks now and has consistently kept to a 65-per cent-plus equity allocation. Two, the fund's equity portfolio is heavily tilted towards banking and financial services stocks. The sector carries high beta and has underperformed in recent times.

The fund's higher equity tilt and its penchant for banking stocks may, in fact, explain why its one-year performance still shows a NAV decline while a few other peers have managed single-digit gains.

The risk added by the above factors, however, is somewhat counter-balanced by two factors. While the fund has a higher equity exposure, the exposure is tilted mainly in favour of blue-chip stocks. In the February 2012 portfolio, for instance, three in five equity stocks in the portfolio had a market capitalisation of over Rs 10,000 crore.

The fund, in recent months, has also balanced its high equity weights with cash holdings, reducing its vulnerability to a market fall. Birla Sun Life 95 Fund's holdings in cash equivalents amounted to nearly 13 per cent in its February portfolio.

Portfolio changes

An increase in the equity allocation from 65 to 69 per cent and the addition of bank exposure have been the key portfolio shifts in this fund in recent months.

While bank and finance stocks have suffered severe setbacks in the last one year on asset quality and slowdown concerns, recent policy changes such as the Cash Reserve Ratio cut have the potential to lift margins. The fund's top choices in this space — ICICI Bank, HDFC Bank and Axis Bank — carry fewer of the above risks.

Birla Sun Life has always been a good debt fund manager. The 95 Fund's debt portfolio has been actively managed. With government bonds losing steam on the stable interest rate outlook, the fund has minimised its investments in gilts and raised it in corporate bonds.

This may have helped it take advantage of the sharp increase in yields in the corporate segment, where liquidity continues to be tight.

The fund's one-year returns are marginally negative. But with the portfolio positioned to take advantage of any equity market rally, it remains a good buy for investors who can take on a bit of risk.

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