Safety with tax benefit

BIRLA SUN LIFE’95
Over the past 13 years, this fund has had its bursts of brilliance and bouts of underperformance. And, has evolved into a middle-of-the-road performer that rewards investors who hangs in for long-term. Its five-year returns of 23.4 per cent (October 30) bears testimony.

The fund aims at keeping equity allocation in the 50-75 per cent range and over the past year, it has averaged at 66 per cent. In the current rally, it raised its equity allocation from 56 per cent (January) to 75.4 per cent (May). This move contributed to the fund’s gain of 79.3 per cent in the rally from March 9 to October 30 (category average, 62 per cent).

This aggressive equity allocation, with a focus on growth stocks (half the allocation is to mid and small-cap stocks), gives it a risky slant. But the fund manager ensures the portfolio is not concentrated on just a few stocks.
 

Returns
Funds	Returns (%)
	1-year	3-year	5-year
HDFC PRUDENCE	94.94	14.76	25.96
BIRLA SUN LIFE’95	82.61	13.91	22.67
DSPBR BALANCED	64.48	14.36	22.53

The fund tends to adopt a contrarian stance in its sector bets. In the first six months of 2007, it averaged an exposure of 14.59 per cent to financials (category average, 7.4 per cent). By December, its exposure to services sector was 16.2 per cent (category average, 5.8 per cent) and the fund had no exposure to metals. In the case of energy, it had an exposure of just 5.3 per cent (category average, 10.7 per cent).

On the debt side, the fund has a preference for G-Secs and bonds. It mostly maintains a high-quality portfolio but does stretch the maturity. The actively managed debt portfolio goes for duration calls; hence, the fund manager tends to stay away from Commercial Paper (CP) and Certificates of Deposit (CD).

HDFC PRUDENCE
Our enthusiasm for this offer remains. Right from 1996 to 2006, the fund has beaten the category average every single year. It encountered a temporary setback in 2007, as it delivered a very average annual performance. And, in the bear run (January 8, 2008 to March 9, 2009), it shed marginally higher than the category, 45.4 per cent against the category’s 42.7 per cent. The reason for the latter could be the fund’s determination to hold on to its equity exposure and high exposure to lower-cap stocks.

However, it has made a comeback in the recent bull run (March 9 to October 30). It delivered the highest returns, of 98.2 per cent, in its category.

Historically, the fund has always stayed well within its equity limit, of 75 per cent. But in the bull phase that started mid-2006, equity rose to the maximum limit and, at times, even crossed it marginally. Surprisingly, the fund maintained its equity allocation even in the 2008 market meltdown. However, the high allocation to equity helped it gain ahead of peers in the current bull phase.

But, the portfolio is well diversified across stocks and sectors. The fund manager also doesn’t get carried away by momentum plays. On the debt side, he prefers to holds bonds and debentures.

A reason for its success could be the continuity at the helm. Despite a change of guard thrice, in terms of asset management companies, Prashant Jain has been the constant factor and it’s only fund manager.

This fund is for those investors who won’t mind slight hiccups in returns and can hang on for the long run. Over the five-year period ending October 30, 2009, the fund is the best performing in its category, with an annualised return of 26.3 per cent.

DSPBR BALANCED
You won’t find this fund topping the charts, but neither will you find it at the bottom of the ladder. This one does what a balanced fund is supposed to do - play it safe.

In the bear run from January 8, 2008 to March 9, 2009, the fund shed 38 per cent (category average, minus 43 per cent). But, in the rally that immediately followed (March 9–October 30), it delivered 62.6 per cent (category average, 62). And there lies its appeal.

The fund sticks to its equity mandate of 65-75 per cent. It upholds its large-cap bias but is not averse to smaller stocks. In 2007, it decreased its large-cap allocation between January (52 per cent) and September (36 per cent). In the recent market run up, too, it reduced its large cap exposure between February (64.4 per cent) and October (41.7 per cent) 2009.

Apoorva Shah took over in June 2006 and maintains a well-diversified portfolio that has averaged at 75 stocks in recent times.

By May 2009, there was an obvious reduction in exposure to defensives, while aggression was seen in energy (17 per cent) and financials (10.55 per cent). But, he now claims to be once again betting on defensives. “We had turned aggressive but are now more balanced. Though we believe the economy is bottoming out, the pace of growth of stock prices is higher than the pace of growth of recovery. So, there will be a reality check in the market and we expect to get the recovery stocks cheaper, which would include metals, engineering and real estate,” says Shah.

On the debt side, the fund tries to keep risk to its minimum by sticking to high quality and low maturity paper. It prefers to invest in floating rate paper and government bonds and in this way, balance the credit as well as interest rate risk.