For the past two quarters, Birla Sun Life Short Term Fund has been ranked in the top 30 percentile in the short-term income funds category, under CRISIL's mutual fund ranking methodology. At the end of the quarter ended June, average assets under management (AUM) stood at Rs 742 crore. The fund, managed by Prasad Dhonde since July 2011, was launched as Birla Sun Life Income Fund in March 1997. It was renamed Birla Sun Life Short Term Fund in February.
Investment objective
The fund's investment objective is to generate regular income and capital appreciation by investing its entire corpus in a diversified portfolio of debt and money market securities. It aims to invest in investment grade securities of short- to medium-term maturity.
Short-term income funds aim to generate returns by investing in short-term fixed income and money market instruments. Typically, their maturity profiles are higher than liquid- and ultra short-term bond funds, but lower than those of long-term income funds. Therefore, these funds are suitable for investors with moderate risk appetite with an investment horizon of one to three years.
Performance
Birla Sun Life Short Term Fund has outperformed the CRISIL Short-Term Bond Fund Index and its category, across time frames. Over the one-year time frame, the fund delivered annualised returns of 9.92 per cent vis-à-vis 8.80 per cent by the CRISIL index and 9.59 per cent by the category.
The fund also has one of the lowest expense ratios among its peers. According to the last mandatory half-yearly disclosure, the fund's expense ratio was 0.25 per cent vis-à-vis 0.97 per cent of the category average. Typically, returns of short-term debt funds tend to be in a tight range. In such a scenario, the lower expenses charged by these funds could be beneficial for investors in the long run.
Portfolio analysis
Based on the market scenario, the fund has dynamically managed its portfolio to gain from the rise in short-term rates. When rates for certificates of deposit (CDs) started rising, the fund increased its allocation to these. Three-month CD rates rose from 8.2 per cent in October 2010 to 10.1 per cent in May 2011. During this period, the fund increased its exposure to CDs from two per cent to 99 per cent. This was subsequently reduced to eight per cent when CD rates fell to 9.35 per cent at the end of September 2011.
Over the past year, the fund has predominantly been exposed to non-convertible debentures and bonds, while keeping its exposure to CDs low.
The fund has maintained the quality of its portfolio credit. Under CRISIL's mutual fund ranking methodology for the quarter ended June, the fund stood at the top cluster on the asset quality parameter.
Over the past year, 75 per cent of its portfolio was invested in highest rated securities (AAA/A1+). The fund has reduced its exposure to 'AA' rated papers from 25 per cent in December 2011 to six per cent in July.
On an average, the fund invested in 12 debt securities through the past year, in line with its peer group. The fund's top 10 securities accounted for 86 per cent of the portfolio, while the top 10 securities for its peers accounted for 80 per cent of their portfolio. The fund, thus, is more concentrated compared to its peers.
Duration management
Birla Sun Life Short Term Fund has actively managed its duration (portfolio maturity) and interest rate risk. It increased the maturity of the portfolio when long-term yields fell, and reduced it when these hardened. Lowering the maturity when yields rise reduces the interest rate risk and vice versa.
CRISIL Research