High returns, Low expenses
Birla Sun Life Short Term Fund has been ranked in the top 30 percentile in the short term income funds category for the past two quarters under the CRISIL Mutual Fund Ranking methodology. The average assets under management (AUM) were Rs 742 crore for the quarter ended June 2012. This fund, which is being managed by Prasad Dhonde since July 2011, was launched in March 1997 as Birla Sun Life Income Fund – it was renamed as Birla Sun Life Short Term Fund in February 2012.
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. The fund aims to invest in investment grade securities of short- to medium-term maturity.
Short-term income funds seek to generate returns by investing in short-term fixed income and money market instruments. These funds typically have a maturity profile higher than liquid and ultra short-term bond funds but lower than that of long-term income funds. As such, these funds are suitable for investors with a moderate risk appetite with an investment horizon between one year and three years.
Performance
As seen in the chart, Birla Sun Life Short Term Fund has outperformed the CRISIL Short Term Bond Fund Index and its category across various time frames. Over the one-year time frame, Birla Sun Life Short Term Fund has delivered an annualised return of 9.92% vis-à-vis 8.80% by the CRISIL Short Term Bond Fund Index and 9.59% by the category.
The fund has one of the lowest expense ratios amongst its peers. As per the last mandatory half yearly disclosure, the expense ratio of the fund was 0.25% vis-à-vis 0.97% of the category average. Typically, the returns of short-term debt funds tend to be in a tight range. In such a scenario, lower expenses charged by these funds could be beneficial for the investors in the long run.
Portfolio analysis
The fund has dynamically managed its portfolio based on the market scenario to gain from the increase in short-term rates. The fund increased its allocation to CDs when the CD rates started rising. From October 2010 to May 2011, the three-month CD rates rose from 8.2% to 10.1%. During this period, the fund increased its exposure to CDs from 2% to 99%. This was subsequently reduced to 8% when CD rates fell to 9.35% at the end of September 2011. However, over the past one year, the fund has had predominant exposure to non-convertible debentures (NCD) and bonds, while keeping low exposure to CDs.
The fund has maintained a good portfolio credit quality. The fund was in the top cluster on the asset quality parameter under the CRISIL Mutual Fund Ranking methodology for the quarter June 2012. Over the past year, 75% of its portfolio has been invested in highest rated securities (AAA/A1+). The fund has reduced its exposure to AA rated papers from 25% in December 2011 to 6% in July 2012.
Over the past year, the fund has invested in 12 debt securities on an average which is in line with the peer group. The top 10 securities of the fund accounted for 86% of the portfolio whereas the top 10 securities for the peers accounted for 80% of the portfolio. Thus, the fund is slightly more concentrated as compared to its peers.
Duration management
The fund has actively managed its duration (portfolio maturity) or interest rate risk. The fund has increased the maturity of the portfolio when long-term yields fell and reduced it when they hardened. Lowering maturity when yields rise reduces the interest rate risk and vice versa.
CRISIL Research
