With equity markets continuing to see-saw, many investors would look at booking profits on rises and rebalancing their portfolios. While waiting for markets to stabilise, liquid plus funds are probably the best place to park funds in.

However, debt funds can also be an option, especially those that will be able to manage short-term uncertainty in interest rates as well as be in a position to take advantage of softening interest rates when they happen. Birla Income Plus is one such fund.

Investors looking to increase the debt allocation in their portfolio and willing to take a bit of volatility can make BIP a part of their portfolio. The fund, launched in October 1995, has a track record of more than 12 years. Its objective is to generate consistent income through superior yield with exposure to moderate levels of risk.

Performance. The long track record along with consistent performance has seen BIP give returns higher than its peers as well as its benchmark index. The fund has generated 10.41 per cent average compounded annualised returns since its inception. Over the three-year period, BIP has given returns of 7.44 per cent, outperforming the category average (5.16 per cent) as well as the benchmark (5.64 per cent).

Portfolio. A disciplined and a well-structured investment policy along with active management of the portfolio have helped the fund sail smoothly through different market conditions during its long years.

The core part of portfolio (30-40 per cent of net assets) comprises of corporate bonds. The portfolio is generally invested in corporate bonds of public sector undertakings like PFCI, Exim Bank, Nabard and IRFCI, among others. The credit quality of the portfolio is high with bonds of AAA and equivalent rating making up 58.26 per cent of the assets.

The fund manager takes active duration calls with the remaining 60-70 per cent of the portfolio. The duration of the portfolio is adjusted according to the fund manager's view on interest rate movements.

If interest rates are expected to go down, the fund manager increases the duration of the portfolio by shifting to bonds with longer maturities to benefit from the resultant increase in the price of bonds. The reverse applies when interest rates are expected to go up.

The fund uses government securities (G-secs), which is the most liquid segment of the market, to implement its duration calls. The fund has an exposure of around 50-60 per cent to G-secs.

Maneesh Dangi, who is the company head for fixed income, Birla Sun Life Mutual Fund, manages the fund.

Outlook. The interest rate risk will hold the key to the performance of the fund. The interest rate scenario will depend on inflation, which, in turn, will depend on factors such as commodity prices. An easing in commodity prices, if supply-side factors permit it, may have a positive impact on inflation and interest rates. If inflation does not moderate, political compulsions may force the central bank to further tighten liquidity, which will push interest rates up.

In such a situation the ability of the fund manager to generate returns across the yield curve will be crucial. BIP has demonstrated this ability in the past.

Invest in BIP if you want to increase the debt allocation in your portfolio without compromising on the ability to generate returns, provided you are willing to take some volatility. Have an investment horizon of more than one year.