VR Logo

House Cleaning

Birla Sun Life MIP has changed colours under the new management. The fund has toned down some aggression and now looks more like a conventional MIP

However, close to 14 per cent allocation to equities as on May 31, 2006, and within equities preference for relatively risky mid- and small-cap stocks can still deliver some surprises.

Erstwhile Alliance MIP, the fund was known for its aggressive management approach to both equity as well as debt portfolio. It could have tested the patience of even the most aggressive MIP investor. That is no longer the case. While the fund managers continue to manage the equity part aggressively, caution seems to be their priority for the debt portfolio.

The fund loved to play the maturity card aggressively. The average maturity used to be very high here-it rarely dropped below two years till late 2005. Even in tough times, like the year 2004 and 2005, the average maturity rarely dropped below 2 years. The fund managers had similar strategy for the credit quality of the portfolio. They did not hesitate to buy below AAA-rated papers. Till December last year, it used to be in double-digits, often close to 20 per cent - one of the highest in the category and way above the average category exposure. This aggressive stance had rewarded the fund handsomely but it had also cost it dearly at times. For example, too much equities in the portfolio backfired in 2001 when the fund found itself at the category's bottom. Also, a higher gilt exposure at higher maturities caught the fund off guard when the interest rates were unexpectedly hiked in July 2000.

Things have changed now. Exposure to lower-rated papers has been cut substantially to single digit. These days, above 70 per cent of the portfolio is parked in high-quality corporate bonds and CPs. The fund has also existed gilts. Portfolio maturity too has been substantially lowered. These corrections under the new management have helped the fund control volatility. Standard deviation (a measure of risk), which always used to be more than an average peer, has dropped sharply to 0.40 as against category average of 0.48. The fund has also improved on its rating from two stars in August last year to four stars now.

Still, with more than half of the equity portfolio committed to mid- and small-caps, it can test your patience, particularly in tough times, like we have today. Another concern is high expense ratio. At 2.16 per cent, it is way above average peer's expense of 1.79 per cent.