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Cut Above The Rest

A disciplined approach and regular payouts makes Birla Monthly Income Plan different from its other MIP buddies. High-income seekers will like a lot here. However, the only worry is that this fund sits on too much cash.

Unlike its older-generation MIP cousins, this fund instead of promising investors the moon strives really hard to post cheques to them every month. That apart, Birla MIP's disciplined approach of playing stocks has enabled it to add value to investors' money with relatively more stability than its rivals. Its performance bears testimony to that.

This debt fund (with marginal equity) since its launch has been toying with portfolio credit quality. After starting off with AAA papers, it has graduated to below AAA issues. During upbeat markets the fund did stretch maturity by taking high exposure to gilts, in a limited way though. Of late, with bond rally over, the share of below-investment grade instruments, has gone up from 3% in the beginning to 22% now. The rationale: with the economy looking up, in all likelihood these instruments will be upgraded. Whether this shift in stance works in the fund's favour or against it will be visible after some time as below AAA instruments though carrying a higher coupon are a lot riskier.

But what has really boosted this fund's returns are its equity stakes. Rather than holding on to stocks forever, the fund manager books profits at opportune times. This coupled with a fairly diversified portfolio has facilitated regular income payouts. In contrast, its peers, who went overboard on ICE stocks, were severely whacked during the downslide. Though Birla MIP started off with 5-7% exposure in pharma and technology stocks, in turbulent times, it turned cautious by slicing its equity stake to about 2-3%. Nonetheless equities being inherently volatile, the fund at times has posted negative returns (though marginal).

However, what has particularly been worrisome is the fund's tendency to sit on cash, averaging around 14% of assets. The AMC's justification is that this helps in combating 'event-based volatility'. Going by the vulnerability of stock markets to events in the recent past, this strategy seems right. But when stock markets surge, idle cash won't fetch anything.

Overall, with a predominantly quality dent holdings, stable income investors with appetite for higher income and a stomach to see slight fluctuations will be particularly pleased with this fund.