Managing volatility

FUND PICK/ Birla Floating Rate - Short-Term

Background: Birla Floating Rate ST was launched in June 2003. There is no load to enter or exit this scheme. The minimum investment is Rs 1 lakh. The fund offers growth and weekly dividend options.

Performance: The fund has delivered above-average returns with low risk, becoming a good investment vehicle for investors seeking to avoid volatility in the debt market.

For the one year ended September 10, 2004, its returns stood at 4.72 per cent compared to the category's returns of 4.6 per cent. Its three-month returns stood at 1.12 per cent against the category average of 1.09 per cent.

Since the beginning of 2004, the fund has returned 3.17 per cent, better than the category average of 3.08 per cent.

Portfolio: The fund takes a low interest rate risk and keeps half of its investments in floating-rate instruments. Though its average maturity has moved between five and 19 months, the fund has managed to keep volatility under control.

Its average monthly return has been 0.39 per cent, higher than the category average return of 0.37 per cent.

The fund has taken lower credit risk by investing in short-term P1+-rated securities and AAA-rated bonds. But between April and May 2004, it invested over 30 per cent into mid-quality bonds. The exposure has been cut down to 20 per cent subsequently.

The fund's expense ratio stands at 0.84 per cent, which is in line with that of other floating-rate funds. Besides, the fund has managed to do well in volatile times. 
 

Top holdings
As on Aug 31, 2004	Value (Cr)	Net Assets (%)
ICICI Bank	78.93	14.68
Mahindra & Mahindra Fin.	45.00	8.37
HDFC	35.01	6.51
Citifinancial Consumer Fin.	20.00	3.72
Kotak Mahindra Primus	19.00	3.53
Infrastructure Dev. Fin.	15.98	2.97
National Housing Bank	15.00	2.79
Citicorp Finance	14.00	2.60
Cholamandalam Inv. & Fin. Co.	12.93	2.40
IDBI	10.00	1.86
DCB	8.81	1.64
Lakshmi General Fin.	5.00	0.93
Uniphos Enterprises	5.00	0.93
Gujarath Glass	5.00	0.93
Sundaram Finance	4.00	0.74
GE Capital Services	3.00	0.56

Outlook: The fund is a good option for investors who want to avoid debt funds due to the fear that interest rates will rise.

- Value Research