It's been makeover time at Birla Income Plus over the past couple of years. Now sporting an aggressive face, and betting actively on interest rates instead of allowing their movement to dictate terms, this income fund is now outperforming its peers with a degree of comfort.
It wasn't ever so. Much of the fund's performance in the early days can be explained by its problems of plenty. Having reached Rs 1,000 crore, the fund was faced with a shortage of liquid investment options. At that time government securities were not so actively traded. So the fund had to load up on corporate bonds. Over time, the conversion of a portfolio comprising fully of bonds into more liquid instruments had an impact cost. And this is reflected in the performance at the same time the fund's early launch enabled it to lock into assets offering higher coupons. It benefited from these for a long-time. By the time other funds had launched income schemes, interest rates had started their southbound journey.
In recent years the fund has made conscious efforts to realign the asset mix along top rated bonds. The exposure to below AAA rated corporate bonds has come down from an average of 20 per cent in 2000 to 10 per cent in the current calendar. From these lower rated papers the fund obtains higher coupons and the possibility of an upgrade is also there. Though yields on these have come down in recent times, leaving little scope for extra returns, but betting on economic recovery to pep up the credit quality of these holdings is still possible. More so now that an economic recovery seems possible.
Ever since it lagged its peers in early 2001, when the interest rates went down sharply, the scheme has been looking to aggressively tailor the maturity of its holdings. The moderate maturity levels it had earlier did not allow it to maximize its gains initially, but since then the fund manager has compensated for that.
In the process, what Birla Income Plus has achieved is that proverbial fine balance between interest income and trading profits. For investors in search of a steady income from their mutual fund, that's certainly a balance worth maintaining.
This article was originally published on December 09, 2002.
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