Aditya Birla Sun Life Corporate Bond: Consistent performer across rate cycles

The fund’s steady returns across rate cycles lend comfort to risk-averse investors

This year has begun on a volatile note for bond markets. The yield on 10-year government bonds has yo-yoed sharply in the past month, with lingering uncertainty over CPI inflation and the RBI’s future rate actions. The Centre’s fiscal math has also been thrown out of whack post the Interim Budget 2019-20, keeping bond markets on tenterhooks.

If you are a conservative investor wary of interest rate risk and like to play it safe with credit ratings of the underlying bonds, funds under SEBI’s ‘Corporate Bond Fund’ category are a good bet. These schemes, as mandated by SEBI, need to invest at least 80 per cent in highest-rated debt instruments, lowering the credit risk.

Aditya Birla Sun Life Corporate Bond (erstwhile Aditya Birla Sun Life Short Term) has delivered an annualised return of 9.3 per cent since its launch over two decades ago. The fund has been investing in high-rated papers in the past, too, and seen minimal changes post SEBI’s directive on categorisation and rationalisation, over a year back.

Over the past three-, five- and 10-year periods, the fund has delivered annualised returns of 7.8 per cent, 8.6 per cent and 7.7 per cent, respectively, across rate cycles. The fund’s low duration also mitigates interest rate risk.

Investors with a two to three-year time horizon can invest in the fund.

Sound performance

Aditya Birla Sun Life Corporate Bond has been a consistent performer. Though the fund may not deliver dizzying returns — due to its lower duration (unable to fully cash in on bond rallies) and higher investment in top-rated bonds (capping yields) — its steady returns across rate cycles lends comfort to risk-averse investors.

In the 2014 bond rally, the fund delivered nearly 11 per cent returns, which is decent. It also managed to put up a good show in 2015, delivering a healthy 9 per cent return, even as yield on government bonds remained high. In tepid 2017 and 2018, the fund reported a lower 6.5-7 per cent return, but managed to outperform the category average.

Portfolio mix

Over the past year, the scheme has been investing 75-80 per cent of its assets in AA+ and above-rated bonds. As per its latest portfolio (as of December 2018), the fund invested about 86 per cent in AAA and AA+ rated bonds.

The fund’s yield-to-maturity of 8.6 per cent is healthy, considering its low exposure to risky bonds. Since shorter tenure bonds are less sensitive to interest rates, the fund’s low duration works well in the current volatile market. The fund’s average maturity is currently 2.3 years.

Top holdings of the fund include high-rated (AAA) bonds of Rural Electrification Corporation, Power Finance Corporation, ONGC Petro Additions, Mahindra & Mahindra Financial Services, and National Bank for Agriculture and Rural Development.

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