I had invested in Birla Sun Life Income (growth) in early January based on its rating. However, I find that this month my NAV has eroded by 8 per cent. Could you please guide as to why this is happening? -Nagu P.
The Value Research Fund Rating is a composite and objective measure of a fund’s risk-adjusted return on a scale of 1-star to 5-stars, with the 5-star rating being the best. The rating summarises how a fund has performed historically, relative to the other funds in its category, for the risks it has taken. So rating measures the past performance. It is not necessary that the fund will continue to perform exactly the way it has performed in the past. Also, rankings must not be the sole basis of selecting a fund for investment.
Birla Sun Life Income fund has around 50 per cent of its assets invested in G-secs which are very volatile. Also, the prices of government bonds are inversely related to their yields. Recently, the yield of government bonds has gone up, which has resulted in a fall in their prices. That’s why the returns of the fund which has kept half of its assets in government securities have come down.
The holding period of your fund has been just over a month now. You must not judge a fund by its very recent performance. The fund you have been holding is a good fund. Its historical performance has been impressive. So you can hold the fund and not bother about short-term gyrations.