The stock market has been on a roll, scaling new highs and delivering hefty returns for investors in recent times. If you have a low risk appetite, you can opt for funds that invest predominantly in debt but also take notable exposure to equity.
While the debt portion of the fund’s portfolio can help contain downside well, exposure to equity can add spice to your returns, if the bulls continue to charge on D-street. Birla Sun Life MIP II Wealth 25, which has been investing about 70 per cent of its portfolio in debt, has delivered steady and category-beating returns across time periods.
The debt market has had an excellent run over the past year, with yield on G-Sec falling by about one percentage point. Birla Sun Life MIP’s active management of its debt portfolio, as also good exposure of mid- and small cap stocks, helped the fund rake in a strong 17-odd per cent return over the last one year. In recent months, the fund has trimmed its exposure to mid- and small-caps within its equity basket and also reduced duration in its debt portfolio.
Given the spectacular run in both equity and debt market over the past one year, adopting a more cautious stance at this juncture is welcome.
The common misconception with funds such as Birla Sun Life MIP II Wealth 25, which carry the ‘monthly income plan’ tag, is that these funds are ideal to generate a steady flow of income for those looking at alternatives to bank fixed deposits.
But while MIPs give you income in the form of dividends, just like any other fund, you must remember that there is no guarantee on the monthly income. Birla Sun Life MIP II Wealth 25 has been a consistent dividend payer. Nonetheless, investors not looking for a regular payout should opt for the growth option, to rake in better returns. While dividends declared by funds are not taxable in the hands of the individual, the fund house has to deduct taxes before distributing dividend to investors. All non-equity investments now attract a dividend distribution tax (DDT) of 28.8 per cent. The growth option of Birla Sun Life MIP II Wealth 25 has delivered double digit returns over one-, three- and five-year periods of 14-17 per cent.
Deft callsThe fund has actively managed both its debt and equity portfolio. In 2014, for instance, the fund upped its exposure to G-Secs to 40-50 per cent.
After keeping 55-60 per cent of its investments in government bonds through most of 2016, the fund has, in recent months trimmed down its exposure to around 45 per cent.
The RBI’s still ‘wait and watch’ approach towards rate cut has led to some uncertainty in bond markets.
The fund taking a cautious call on debt can help tide over volatility better. The fund currently has a duration of 5.8 years.
Good stock picks have also helped the fund spice up its returns. The fund had 40-45 per cent of its equity portfolio in mid- and small caps in the initial part of 2016, which it has been gradually bringing down. Currently, the fund has about 25 per cent of its equity in mid- and small-cap stocks.
Having stocks such as Voltas, Johnson Controls-Hitachi Air Conditioning India, PNB Housing Finance, Bajaj Finserv, and V-Mart Retail added spice to the fund’s returns in 2017. Buying into stocks of SpiceJet and TVS Motors has also worked in the fund’s favour this year.