Birla Sun Life Dynamic Bond Fund: Invest :: Business Line

�� -->

Given the volatility in the equity market, investors may consider debt options such as bond funds. The prospects of such instruments look bright as interest rates are expected to fall.

Among the various options, Birla Sun Life Dynamic Bond Fund (Birla Dynamic) has delivered returns across interest-rate cycles and is among the top few in its category.

Over one-, three- and five-year time-frames, the fund has consistently outpaced its benchmark Crisil Composite Bond Fund Index by comfortable margins of 1.5-2.5 percentage points.

In the last five years, Birla Dynamic has generated compounded annual returns of 9.4 per cent, putting it among the top couple of funds in its category and ahead of peers such as SBI Dynamic Bond, Kotak Flexi Debt and BNP Paribas Flexi Debt.

With diversified holdings and generally accurate calls on portfolio duration, the fund has rewarded its investors well. Of course, it does invest in instruments that span a significant part of the entire yield curve, though it generally takes more short-term bets.

The scheme’s risk and volatility levels are usually low and certainly better than several of its peers. Birla Dynamic can be the core portion of an investor’s debt portfolio. Investors can also take the SIP (systematic investment plan) route to park sums periodically in the fund.

PORTFOLIO AND STRATEGY

Birla Dynamic typically takes short- to medium-term bets in terms of the maturity profile of its bond holdings.

The portfolio’s average maturity profile is 1.25-2.5 years generally and, at select times, depending on the interest rate scenario and market conditions, the tenure is longer. With the likelihood of the RBI reducing interest rates, bond prices may witness a rally over the next 1-2 years.

The yield to maturity too has generally been relatively high and better than fixed deposits or MIPs of similar duration, at 9.48 per cent. More than 60 per cent of the fund’s holding are in the highest AAA rated instruments such as corporate debt, debentures and certificates of deposit. These include investments in institutions such as PFC, Nabard, LIC Housing Finance and HDFC. Another 21.1 per cent of the fund’s investments are in AA rated securities, but these investments too are in well-established names. Also, 12.8 per cent of the holdings are in sovereign debt that carry nearly no default risk. To play it safe, the fund also increases cash position during times of highly uncertain interest rate scenarios.