Funds striving to generate regular income as well as growth of investments usually end up doing one of these two tasks. But Birla Monthly Income Plan (MIP) in its two-year stint has managed to do both. And while doing so it has managed to post cheques to its investors every single month without fail. A disciplined approach when dealing with equity is one of the main reasons for this.
This MIP, after starting off with AAA debt instruments, today is courting below AAA papers. That apart, the fund has also shown interest in gilts, which aid in active portfolio maturity realignment. With an eye on yield-spreads, the fund has been proactively moving in and out of these three types of instruments. For instance, in July 2002, as the spread between gilts and AAA instruments narrowed, the AAA component was reduced from 40 per cent to 29 per cent, while gilt exposure rose four times to touch 20 per cent. At the same time, as gilts tend to be more volatile than corporate bonds, the fund has tried to limit exposure to these.
Similar has been the case with AA and associated bonds where the fund has increased allocation on the hopes of an improving economy. From an average 12 per cent in 2001, today these account for an average 21 per cent of the portfolio. This, however, adds to the credit risk of the portfolio. Recently, one of these papers, Kotak Mahindra Primus (eight per cent exposure as on November 30, 2002) was downgraded from AA to AA-. However, fund manager K. Ramanathan feels that as the fund's exposure is limited to short-maturity instruments, the impact of this downgrade has been marginal.
What has boosted Birla MIP's returns are its equity stakes. The fund regularly books profits and a diversified portfolio has minimised the chances of nasty surprises. Along with this, sharp re-allocation between equity and debt has also helped in containing the downside. However, equities are volatile and the fund at times has posted marginal negative returns.
Overall, the Birla MIP fund has a predominantly quality portfolio. Investors with an appetite for regular income along with some growth of capital will be particularly pleased with this fund.
This article was originally published on February 24, 2003.
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