Birla Sun Life GSF Long Term Plan: Invest



Risk-averse investors looking for relatively safe debt options in the mutual fund category can consider investing in Birla Sun Life Government Securities Fund Long Term Plan. With a compounded annual return of 11.3 per cent over the last three years, the fund convincingly beat its benchmark I-Sec Li-Bex, by over four percentage points.

Active management of interest rate risk and ability to identify and benefit from short-term technical abnormalities in the interest rate curve have ensured that the fund is among the top five in the medium and long-term debt funds category.

Asset allocation

While the name of the scheme may suggest that it is a typical long-term gilt scheme, the fund has a highly flexible strategy. It can take exposure to government securities of both Central and State governments and can also invest in more short-term treasury bills. To this extent, it can take advantage of any rallying interest rate scenario by moving to short-term treasury bills. This not only protects the portfolio from any lack-lustre performance in long-dated instruments but also peps up returns albeit for a short duration. A more important asset allocation mandate is that the fund can only invest in government securities. This effectively brings the credit risk of the fund's portfolio to almost nil as all government instruments come with a sovereign guarantee.

Suitability

Birla Sun Life GSF is suitable for risk-averse investors looking for returns superior to traditional debt options such as the Post-Office Schemes. Being a debt-oriented mutual fund, it would be subject to capital gains tax.

Traditional options such as the post-office schemes, on the other hand, would suffer tax on interest income in the tax slab applicable to the individual. A 9 per cent debt instrument, for instance, would provide post-tax returns of 6.3 per cent. A debt fund with similar returns held for over one year, though, would return a superior 8.1 per cent, assuming a 10 per cent capital gains tax without indexation.

However, unlike traditional debt options, the fund has no mandate to provide regular income by way of dividend.

Strategy, performance

On a rolling return basis over the last two years, Birla Sun Life GSF – LT delivered annual returns in the range of 8-28 per cent.

It has over a one-, three- and five-year basis, remained in the top five in its category; although funds such as ICICI Pru Gilt Investment Plan - PF have outperformed Birla Sun Life GSF over a three-year time frame. The former, though, has lagged over a one-year time frame as it continues to hold long-dated securities.

Birla Sun Life GSF capitalised on short-term anomalies such as high long-term government bond yields even as the RBI cut interest rates. The fund has also been adept in changing the maturity profile of its portfolio. It has now shifted to 91-day treasury bills from holding gilts with a maturity of 7.7 years five months ago to ride the current high short-term interest rate wave.

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