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Mutual Fund Review: Principal Monthly Income Plan

Name: Principal Monthly Income Plan-G
Type: Open-Ended Debt-MIP
Fund Manager: Mr. Sandeep Bagla & Mr. Shyam Bhat
Inception Date: May 23, 2002
 
Principal Monthly Income Plan an open ended monthly income plan from Principal Mutual Fund seeks to generate regular income through investments in debt securities to enable periodical income distribution and also to generate long-term capital appreciation by investing a portion in equity related instruments. It could invest upto 100% in debt and money market instruments with yield between 6% and 9% and upto 15% in equity and equity-related instruments. As on May 2006 it has allocated 81.08% if its assets in debt, 12.59% in equities and rest in cash & equivalent. Its equity component has been fluctuating in the range of 8% to 14% in last one year with average allocation at 10.57%.
 
The scheme had a good start but higher maturity profile, lower equity allocation and frequent churning of the portfolio hauled the returns of the fund in later years. During last one year period it has posted an absolute return of 4.75% while its benchmark and peers were much ahead with returns of 8.07% and 8.17% respectively. The scheme manages the corpus of Rs 63 crore as on May 2006 and has gone down by 56% compared to the previous year.
 
The debt portfolio has been invested in floating rate funds, asset backed securities and non convertible debentures. It has allocated 36.36% of net assets in commercial bonds, 6.3% in T-Bill and rest in securitised debt and equities. Majority of the debt portfolio is invested in good quality rated papers with triple AAA and AA+ rated papers accounting for 25.3% and 11.06% respectively. As on May 2006 it had an average maturity of 949 days which is on the higher side compared to the category average. On the equity side its portfolio is spread across 48 stocks which seem to be large looking at present asset base and 13% equity exposure. Top ten holdings account for more than quarter of its equity portfolio with Britannia industries in top spot. Software sector has received highest exposure at 10.16% followed by Housing & Construction and Diversified sector at 9.21 % and 7.62% respectively. The fund has reasonable mix of largecap, midcap and small cap stocks but nothing proved to be the multibaggers as it had large no of stocks with low exposure and frequently moved in and out of the stocks.
 
Minimum investment required to opt for growth plan is Rs 5000 and Rs 10000 for dividend plan. It charges an Exit load of 0.5% for investments upto Rs 10 lakh and if redeemed within 6 months and 0.25% for investment amount above Rs 10 lakh and less than Rs 5 crore and if redeemed within 30 days from the date of allotment.. While no entry load is charged for the scheme. It is benchmarked against Crisil MIP Blended Index. Expense Ratio of the scheme as on May 31, 2006 is 2% and is a bit higher than the category average of 1.96%.
 

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