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Smart Expense Manager

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility…

Don’t be surprised to find this Fund of Funds (FoF) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.

Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.

One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. “Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Index Fund and large funds like BSL Midcap Fund and BSL Frontline Equity as large funds naturally tend to have lower expense ratios than smaller ones,” says Mohanty. “Having said that, if we feel that taking a tactical position in small sector fund makes sense due to market conditions we would go ahead.” With such a cautious attitude, the fund has managed to keep the expense at a maximum 0.35 per cent.

The fund’s mandate allows it to invest up to 25 per cent of its assets in equity. The equity allocation does not fluctuate much and has averaged at around 22 per cent since launch. It dropped to as low as 7 per cent, but only for the last three months of 2008. By January 2009, it shot back up to 21 per cent. Currently the equity exposure stands at 15 per cent, diversified over 5 schemes.

Despite the restriction of being limited to the schemes of BSL Mutual Fund, the fund has done well. The fund manager stays diversified and allocation to a single scheme does not exceed 7 per cent, a change from the aggressive bets of the past.

On the debt side, majority of the fund’s assets have moved between three schemes-- BSL Ultra Short term, BSL Dynamic Bond Retail and BSL Income Plus. BSL Dynamic Bond changes its average maturity as per the interest rate scenario and is a good performer in its category. In October 2010 it added BSL Gilt Plus Regular to its portfolio which currently corners 12.43 per cent of its assets.

The fund has never paid any dividend so investors wanting some sort of income can consider a systematic withdrawal plan (SWP) if they want to invest in this fund.