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Less Riskier Now

Having survived the crash in first quarter, it needs to be seen if this fund sustains the safe behaviour. With above average return and average risk profile, Birla Gilt Plus Regular Plan is a decent pick for those seeking a pure interest rate risk exposure.

Aggressive interest rate risk management is what Birla Gilt Plus Regular brings to the investors' kitty. And this aggression has translated into an increasingly exciting performance. The fund had a middling 2000, but after that it seems to have taken permanent residence in the top quartile of its category.

Like any typical gilt fund, Birla Gilt Plus Regular too has been hurt whenever the interest rates have made a sharp upwards movement. Though when interest rates rose unexpectedly in July 2000, it could save its skin as more than half of its portfolio was cash. As a result, it lost half as much as its average peers.

After that period, as interest rates kept on falling, the fund actively capitalised by increasing the average maturity of the portfolio. When interest rates fell by 3 per cent during October 2000 to December 2001, the fund gained 31.14 per cent, trouncing 12 out of the other 16 gilt funds. For instance, in April '01 on a favourable credit policy, the fund quickly stretched its maturity from 5.54 years in March to 8.3 years. And with anticipated interest rate cut not coming through till July, it again reduced the portfolio maturity to 4.95 years in July.

Higher maturity increases the vulnerability to downside also as was witnessed during sharp interest rate spike over April to May 2002 and January to February 2003. However improved performance during the latter period reflects the astute management of interest rate risk. Even though Birla Gilt Plus was a big loser during these periods, it could recoup the losses in the first quarter of this calendar, whereas it was down almost half a per cent in the second quarter of 2002.

Post first quarter volatility, as interest rates headed south, Birla Gilt Plus Regular Plan has been the big beneficiary. A visible change in the portfolio has been the high concentration in its top five holdings. But that should not cause panic, as the underlying instruments can be bought and sold easily.

In all, with above average return and average risk profile, Birla Gilt Plus Regular Plan is a decent pick for those seeking a pure interest rate risk exposure. There is one caveat though, the fund's relatively high expense ratio makes it a little costlier than our other picks in this category.