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Moderately Consistent

No chart-topping returns, but Birla Sun Life Monthly Income has made a place for itself in the category’s top half…

It’s hard to get excited about this fund’s returns, but it’s a good bet for those looking at consistency and moderation. No chart-topping returns here but a comfortable place in the top half of the category every year (barring 2005) in its entire existence of 12 years.

With a mandate to limit equity exposure to 15 per cent, it has ranged between 10-15 per cent over the past three years. Although recently the large-cap exposure has inched upwards, this fund is biased towards mid and small caps. According to Dholakia, “the strategy is to invest in high dividend yield companies with decent growth prospects.” The fund manager looks for businesses delivering steady growth in earnings and dividend, strong return ratio on invested capital, strong free cash flow generation and healthy balance sheet.

Fortunately the risk is partly nullified by keeping the portfolio diversified without going overboard. The number of stocks has ranged between 30 and 33 over the past year, though it has touched a high of 46 (July 2010). The fund avoids aggressive bets in a single stock and in the recent past, exposure has not crossed 2 per cent in any individual holding. The debt portion of the portfolio holds high rated paper and is actively managed without going to extremes. The average maturity has peaked at 8.63 years (December 2008). “The strategy is to manage funds with active calls on duration depending on our view on interest rates,” says Dholakia. The fund increased the average maturity profile to 6.18 years in December 2011 but it has dipped to 3.87 years in February 2012, which incidentally is still on the higher side considering it is double the category average. “We are bearish on long duration and bullish on two-three years maturity in anticipation of expected rate cuts by the RBI,” explains Dholakia. Although the expense ratio has recently come down, it still remains on the higher side.