Fund Call. Birla Sun Life MIP II Wealth 25: There’s wealth here, for the conservative

If you are a conservative investor and want to play it safe, you can consider Birla Sun Life MIP II Wealth 25. The fund, which invests about 75 per cent of its portfolio in debt, offers comfort in an overheated equity market, while at the same time adding a small kicker to your returns from its decent exposure to equities. The fund has beaten its category across time periods and rate cycles, delivering a healthy 14 per cent and 10 per cent gains over five- and ten-year period, respectively. Ranking in the top quartile, the fund has outshone its category by a tidy margin of 2-5 percentage points over one-, three and five-year periods.

However, as in the case of other monthly income plans, investors need to invest in this fund for the right reasons. A common inference drawn from the nomenclature is that these funds offer a steady flow of income for those wanting low risk and looking for alternatives to bank fixed deposits.

It is true that MIPs give you income, in the form of dividends. But just like any other fund, there is no guarantee on the monthly income. This is because, regulations clearly state that dividends can be paid only from surpluses and not from capital. While Birla Sun Life MIP II Wealth 25 has been a consistent dividend payer, it cannot be taken as a given.

Also, 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. Taking DDT into account, the post-tax return may also not be that attractive when compared to bank deposits, particularly for people in the 10 per cent and 20 per cent tax bracket.

Keeping these riders in mind, investors can park money in Birla Sun Life MIP II Wealth 25 growth option,mainly to gain from the fund’s active management of its debt and equity portfolio.

The fund has taken deft calls on the interest rate movement to ride various cycles. In the rising rate cycle between March 2010 and October 2011, it managed to deliver 8 per cent return. During this period, it invested mainly in certificate of deposits, debentures and commercial paper. The fund’s lower duration of 2-3 years and just 8-10 per cent investment in government securities for the most part of 2013, particularly during the liquidity tightening phase, worked to its favour.

In bond rallies too, the fund’s active calls have paid off. Coming out of 2013, the fund increased its investments in government bonds. Through 2014, the fund invested 40-50 per cent of assets in government securities. It delivered a robust 27 per cent return during 2014. The fund has been holding close to 60 per cent in G-Secs this year. The yield on the 10-year sovereign bonds has fallen about a percentage so far this year, leading to tidy gains of 17 per cent for the fund.

The fund has also been active in stock picking. Increasing exposure to stocks such as Dalmia Bharat, Capital First, Bajaj Finserv, YES Bank, V-Guard Industries, and Hindustan Petroleum Corporation has worked in its favour in 2016. Taking fresh exposure in stocks like SBI, Cholamandalam Investment & Finance and Century Textiles also paid off.

The fund has also made the best of the action in the primary market, buying into stocks such as RBL Bank, Equitas, Mahanagar Gas and Thyrocare among others.