Birla Sun Life Ultra Short Term Fund is among the top performing funds in the ultra-short term debt fund category, says the Crisil Mutual Fund Ranking for the quarter ended June 2011.
Typically, ultra short-term debt funds have a maturity between that of liquid funds (91 days) and short-term debt funds (1-3 years). As their investments are primarily into low maturity investments, they carry a lower interest rate risk vis-à-vis long-term debt funds. Hence, they are also a good investment choice when interest rates/yields rise.
The fund was launched in April 2002 and is jointly managed by Kaustubh Gupta and Lokesh Mallya. The fund has managed to maintain its position in the top 30 percentile of its peers for the last four quarters, according to the Crisil Mutual Fund Ranking methodology.
INVESTMENT OBJECTIVE
The fund intends to generate income and capital appreciation by investing in a diversified portfolio of debt and money market securities. The fund manager can dynamically manage the fund by investing 100 per cent of the portfolio in corporate debt or government securities. On the contrary, 100 per cent of the portfolio may constitute of only money market securities.
PERFORMANCE
The fund currently has average assets under management of Rs 1,195 crore as on quarter ended June and has outperformed its peers and the benchmark (Crisil STBEX) over the six-month, one-year and two-year time frames.
The fund has consistently taken a higher exposure to certificate of deposits (CD) compared to its peers over the last one year. Its exposure to CDs was an average 72 per cent vis-a-vis 59 per cent of its peers. The one-year tenure CD rates have increased from 7.4 per cent to 9.8 per cent in the last one year. This has helped the fund generate consistent high returns in the last one year.
A sum of Rs 1,000 invested in the fund since its inception would have returned Rs 1,833 as on August 29. A similar investment in its peers and the benchmark would have amounted to Rs 1,762 and Rs 1,812, respectively.
The fund’s volatility of returns over the one-year time frame is lower than the category average for this period. The fund scores well on the downside risk probability (DRP) parameter. Downside risk probability tells an investor the number of times the fund has given returns below the risk-free rate over the last one year. Birla Sun Life Ultra Short Term Fund has given returns below the risk-free rate a fewer number of times, compared to its peers.
PORTFOLIO ANALYSIS
Apart from the performance, an investor should also look at the fund’s portfolio attributes. Parameters such as asset quality and duration management, among others, should be analysed.
Over the last year, 77 per cent of the portfolio has been invested in the highest-rated papers. The remaining 23 per cent is invested in cash and current assets. The fund, therefore, has maintained high asset quality in its portfolio.
While the fund has the flexibility of dynamically managing the asset allocation, it has largely taken a higher exposure to certificate of deposits (CD). Over the last three years, the average exposure to CDs was 75 per cent. Against this, its peers held an exposure of 48 per cent to CDs over the same time period.
The fund’s average maturity varied from 23 days to 256 days over the last 3-year period. Compared to this, its peers’ maturity varied from 51 days to 177 days. The fund has managed its interest rate risk more aggressively, compared with its peers.
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