The fund's consistent out-performance has been tough to beat. And its annual return in past five years lands it in the category's top half. This impressive consistency owes much to the fund's aggressive management of interest rate risk and credit risk, depending upon the underlying market. But then an aggressive stance in managing interest risk also brings in a dash of volatility. The case in point is the month of May this year-the fund lost twice as much as its category peers. However, year-to-date through September 24, 2002, it has gained a smart 9.95%, trouncing nearly three fourth of its peers.
Initially, Birla Income Plus started as a corporate bond fund, aggressive with its credit risk and conservative in assuming interest rate bet - high investment in below triple A rated bonds. Quite a usual site pre 2001, when fund managers looked up to these securities for higher returns. However, with interest rates heading southwards Gilts gained flare, and Birla Income to capitalise on it steered towards Sovereign and high rated securities. Since then Gilts have taken a considerable portion in the portfolio. This shift to government securities has been managed aggressively yet cautiously. But this cautiousness deprived it from taking the full advantage of the bull phase of 2001- its average portfolio was just 3.75 years. Though later, it responded actively by increasing its average maturity.
Now once again the fund is upbeat on interest rate outlook and has elongated its average maturity by increasing its Gilts exposure. The fund earns kudos for its below-average volatility, though that shouldn't be construed as meaning below average risk.
With exposure in high yielding instruments and with an extended maturity, the fund has positioned itself to benefit from economic recovery and any favorable movement in interest rates. Overall, we like what this fund brings to the table - Solid management and steady performance from an evenly diversified bond portfolio. All this has made Birla Income Plus a good choice among available intermediate-term bond funds.