The Hindu Business Line : Birla Balance: Sell

WITH returns of 36 per cent over the past year, Birla Balance has moved up sharply in the performance rankings for balanced funds. But its long-term track record is unimpressive and pales in comparison with funds such as HDFC Prudence and the US-95 Fund.

Unitholders can thus use the recent uptrend to liquidate their investments in the fund. The sharp run-up in NAV also ensures that initial investors can book profit after the recent spell good performance.

Suitability: The Birla Balance at present has a 68:32 mix of equity and debt. However, the managers have from time to time, actively altered this mix, depending on their view of the debt and equity markets. Such a strategy carries a higher risk profile than is the case with a fund that always retains just one equity-debt mix, irrespective of market conditions.

The performance of this fund is linked not only to the selection of stocks and bonds in its portfolio, but also to how correctly the fund managers call the direction of the equity and debt markets. The sharp swings in returns from the fund also suggest that it may not be suitable for a very conservative investor.

On one-year performance, Birla Balance figures among the top five balanced funds in terms of absolute returns. But the fund has generated holding period returns of just around 16 per cent in the three years since its launch. Going by its track record over a three-year period, the fund has also not added significant value through its asset allocation strategy.

Investors in the fund have also fared significantly worse than those who invested in a 65:35 mix between a pure equity and pure debt fund since September 1999.

For instance, investors who invested 65 per cent of their portfolio in Birla Advantage Fund and 35 per cent in Birla Income Plus in September 1999 and made no change in their investment till date, would have made holding period returns of 27 per cent till date. Whereas, investors in Birla Balance, have made 16 per cent.

Portfolio: Unlike most other balanced funds, Birla Balance appears to actively manage both its equity and debt portfolios.

The sectoral exposures in the equity portion have seen significant churn between March 2002 and July 2003.

The exposures to pharma, FMCG and IT stocks, collectively 43 per cent in February 2002, was down to less than 6 per cent by July 2003.

In contrast, exposures to banking, refinery stocks moved from almost nil to 30 per cent of the assets. Since the fund made the bulk of these changes between March and September 2002, it is these exposures which paid off in the past six months.

The fund has also moved from a large cap focus for its equity portfolio, to a significant allocation to mid-cap stocks. Stocks such as Canara Bank, Bharat Electronics, Thermax, Bongaigaon Refineries have graduated to the top holdings, replacing stocks such as ITC, Ranbaxy, Dr Reddy's.

The fund dabbled briefly in the options market in the third quarter of 2002. Some of the option trades are likely to have paid off in a significant way; but such trading does enhance the risk profile of the fund to a significant degree. Options have been absent from the portfolio over the past few months.

The fund has actively altered the duration of its debt portfolio to take advantage of interest rate movements. The average maturity of the debt portfolio moved up from 2.8 years in September 2002 to 4.3 years by June 2003, but has subsequently fallen to 2.1 years by July 31 2003, as the fund liquidated its long-dated gilt holdings.

Fund facts: Birla Balance is an open-end balanced fund launched on September 6,1999. It is managed by Mr A. Balasubramanian. The fund managed assets of Rs190 crore by end of July 31. Minimum investment is Rs 5,000.

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