The sun has been shining bright on the fourth-largest fund house, Birla Sun Life Mutual Fund, since it emerged on the mutual fund landscape in India. With the A.V. Birla group backing and a deep commitment from its foreign partner, Birla Sun Life today is a force to reckon with in the industry. This AMC currently manages 8 per cent of the total mutual fund assets, excluding the Unit Trust of India.
At the time of commencing operations in 1994, the A.V. Birla group had joined hands with American fund manager Capital Group of Companies to launch an equity fund and an income fund in India. The aggressive 'no load' offers helped these funds attract huge money. In 1997, to create an avenue for parking short-term surpluses, Birla Sun Life launched the first cash fund. In the late 1990s, after having realised that the financial services sector—including mutual funds—was booming, the promoters of the fund house started scouting around for a foreign partner with diverse business interests. Enter Sun Life Financial Services of Canada, and exit Capital International. Around the same time, in a bid to expand its asset base, the AMC acquired two funds of Apple Mutual Fund. This acquisition proved to be a boon, as one of the two funds that was acquired was subsequently rechristened Birla IT—a technology fund. This fund, by far, has been the best performer in the category.
Performance
While this AMC has been hitting the headlines recently, the key development has been the makeover of the top management. Bharat Shah, the fund's chief investment officer, exited the AMC in October 2002. Shah—who was synonymous with the fund house—had turned Birla Sun Life's flagship equity scheme, Birla Advantage, into one of the best performing funds till 1999. In the four years between 1996 and 1999, the fund's returns were in the top quartile of its category. While Shah's strong belief in the technology sector helped Birla Advantage touch the skies, ironically, the same sector was responsible for the scheme's poor show later. Before leaving the fund house Shah said in an interview with Mutual Fund Insight: ''We bought well, but we didn't sell well.''
The absence of portfolio churning resulted in a severe beating for the AMC's four (of the eight) equity schemes: Birla Advantage, Birla Equity Plan, Birla IT and Birla Balance in 2000. While Birla IT, Birla MNC and Birla Equity Plan improved their performance in 2001 and 2002, both Birla Advantage and Birla Balance Fund have been languishing at the bottom of the category. In fact, Birla Advantage's stock and sectoral allocation have also been out of sync with the market. Thus, in September 2001, the fund had only 5.87 per cent exposure to IT.
Equally surprising was the fact that pharma sector had a 32 per cent exposure in Birla Advantage's portfolio. The result: the fund underperformed the Sensex in the run-up to the Budget. In 2002, Birla Advantage sold its positions in HPCL and BPCL when these stocks fell in September. As a result, it couldn't capitalise on them when these stocks rallied later on as the fund had negligible exposure. Similarly, the absence of IT heavyweight, Infosys, when it rallied in late 2002 was difficult to understand. Likewise, the AMC's other scheme, Birla Balance, underperformed its category in both 2001 and 2002.
In sharp contrast, Birla IT topped the performance charts both in 2001 and in 2002. Deft use of cash along with successful stock picking saw this fund rise to the top. Birla MNC has also been performing well, sometimes even slightly better than other diversified equity funds that focus on multinationals.
In response to this mixed performance, the AMC has been restructuring the fund management process. The emphasis now is on a systems-driven approach with greater accountability and responsibility for individual fund managers. Also, Birla Sun Life has put in place a system of target price (both entry and exit prices) to ensure that the fund books profits and rotates between sectors. Birla Sun Life's belief in a bottom-up stock picking remains at the core of its investment philosophy. But in the case of Birla Advantage, the AMC has placed limitations on the fund's sectoral exposure to 30 per cent of the portfolio.
Among Birla Sun Life's bond offerings, Birla Income Plus has gone through the longest market cycle, of both rising and falling interest rates. With a 3-year return of 14 per cent, it is a strong contender for a fixed income portfolio. Birla MIP is another star in the bouquet, exhibiting disciplined equity behaviour and consistent dividend payouts. The fund family's gilt offering, Birla Gilt Plus Regular Fund, can easily qualify as one of the best picks in its category thanks to its active portfolio churning and timely moves.
New Products and Services
When it comes to offering investor-friendly services, Birla Sun Life has been a pioneer. Right from the start, this AMC distributed its flagship schemes, Birla Income Plus and Birla Advantage via the Over-the-Counter Exchange of India (OTCEI). The AMC's Elite Circle Club—which was started in August 2002—provided a one-year free insurance cover to investors with at least Rs 5 lakh invested in its funds. The fund house recently introduced Birla Income-Plus-Gift Certifica-tes. To make fund investing and tracking easy, Birla Sun Life has introduced Master Folio service. This helps investors consolidate their separate account statements into a single account. The Readi Cheque facility for its debt schemes eliminates the need to fill up a redemption request. These fixed denomination cheques issued in the name of investors can be encashed any time. Currently, the AMC's load structure for equity schemes is the lowest in the industry.
Apart from constantly improving its service standards, this fund family has added new products to its portfolio. Here the fund house has received a mixed response. Both Birla Index and Birla Mid-cap received a lukewarm response to their IPOs. Birla Dividend Yield Plus, however, has done much better. Now all expectations are set on Birla Bond Index, which is expected to be launched soon.
The Road Ahead
With nine years of experience and almost a full-product basket, Birla Sun Life Mutual Fund has come a long way in creating a structure which could be tough to replicate. Equity assets, however, account for just 8 per cent of its total assets. A revival in the performance of its core equity products could pave the way for this fund house's ascendancy.
This article was originally published on June 04, 2003.
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