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Low-Risk Proposition

Below average risk and consistent performance makes Birla Bond Plus one of the better short-term fund offerings. Investors looking at a short-term investment horizon of 3 to 6 months will find this to their liking.

If you are looking for an avenue to park short-term surpluses, Birla Bond Plus could be one of the better options. Though this fund has largely remained an average performer, its below-average volatility makes it an attractive pick. The fund's 90-day rolling return over the past six months is a decent 1.72 per cent (annualised 6.88 per cent)—at par with the category average.

Birla Bond Plus' consistent performance could be attributed to its moderate approach. The fund has neither been very aggressive nor has it been on the defensive—something that is widely reflected in its average maturity, which has almost always been on the lower side in the category. However, risk aversion comes at a price. For instance, during the bank rate cuts in October 2002 and April 2003, though Birla Bond Plus raised its average maturity from around 0.8 years to 1.16 years on both occasions, it could manage only an average performance during the period. Overall, the fund's average maturity has moved in the 0.14-1.73 years range. As it has always put stability ahead of returns, the fund has a balanced record of beating its peers on a monthly basis. Also, it has never delivered a negative monthly return.

Corporate bonds and commercial papers have been the mainstay of Birla Bond Plus. Together they have accounted for 75 per cent of its total assets, with AAA bonds (average 30 per cent allocation) being the prime picks. On the other hand, the fund has taken selective exposure to short-to-medium-term gilts. However, in the past two months, following a declining spread between corporate bonds and gilts, Birla Bond Plus reduced its AAA bond exposure in favour of gilts. The gilt allocation has moved up from 1.67 per cent in March 2003 to 13.9 per cent in June 2003. Moreover, in an attempt to boost its return, the fund has taken some risk by investing around 18 per cent in below AAA bonds.

Even though Birla Bond Plus is a middle-of-the-road performer, it still boasts of below-average risk scores, and has delivered stable returns in each month since its inception in November 2001. That apart, the fund's expense ratio of 0.9 per cent is lower than many of its peers. Investors searching for a decent short-term bond fund will find this to their liking.