Skip to main content

Mutual Funds: Monthly Income Plans (MIPs)

Monthly income plans are traditionally popular but volatile due to inherent risk in equities

AS OF the quarter-ended March 31 this year, with an aggregate average quarterly corpus of about Rs 29,000 crore, MIPs made up for a little over 10 per cent of all debt funds (excluding liquid funds) and around 20 per cent of all open-ended debt funds (excluding liquid funds).

Monthly income plans, or MIPs as they are popularly called, have been an old favourite of many retail investors who, besides the characteristics and track record of MIPs, like the sound of the word `monthly income' which denotes a steady flow of money on their investments.

Some investors could confuse an MIP with a SIP but the two are completely different. SIPs refer to the feature of systematic investment plan that asset management companies (AMCs) offer investors, mostly in equity funds.

A SIP is not a separate scheme nor is it one of different options with the same scheme such as dividend and growth. It is simply a feature which enables investors to automatically make new subscriptions to a particular individual scheme at a fixed pre-determined interval, usually monthly.

MIPs, on the other hand, are funds or schemes in their own right. MIPs are usually categorised as debt funds but they are not pure debt funds as, in their investment objectives, they retain the leeway to invest a little bit in equities. This little bit can go up to as much as 20 per cent of the total corpus in some cases. Despite an equity component in their portfolio, MIPs are not balanced funds since balanced funds debt-equity ratio would not be too far way from 50:50.

As per data from Capitaline NAV India, there are 50-odd MIPs across AMCs.


Two of them, HDFC Monthly Income Plan-Long Term Plan and Reliance Monthly Income Plan, had large average assets under management (AAUM), Rs 9,902 crore and Rs 8,393 crore respectively as of March this year, putting them among the largest 10 funds in the entire mutual fund industry including the liquid funds which attract heavy institutional and corporate treasury investments.

Despite their popularity among retail investors, MIPs are not exactly conservative with their returns.


Their attractiveness lies in the kicker returns promised out of the equity exposure.
But this is exactly what makes the performance of MIPs uncertain belying the assurance emanating from the term `monthly income' in their nomenclature.

An analysis by of one-year, three-year and five-year returns offered by the monthly dividend payout option of about 30 MIPs, having a minimum track record of five years, reveals a wide disparity between the best, and the worst, performer (see table). The highest average return across the three time periods came from Reliance MIP with a compound annual growth rate (CAGR) of 10.94 per cent in five years, 14,37 per cent in three years and 6.48 per cent in one year. Its last available equity exposure was 19.61 per cent of total AUM.

The lowest average return came from Sundaram MIP-Moderate which posted a 5-year CAGR of 3.92 per cent, 3-year CAGR of 3.60 per cent and one-year CAGR of 0.57 per cent. Its latest equity exposure was 15.21 per cent.

In the 30 MIPs, equity exposures varied widely but there was no fixed pattern of a very high, or a very low, one leading to higher, or lower, returns. For instance, Birla Sun Life MIP II Wealth 25, had the highest latest equity exposure of 24.78 per cent but ranked 15th in one-year CAGR returns. The one with the lowest latest equity exposure was Templeton India Low Duration Fund with a zero per cent exposure to equities and it fared better in one-year CAGR returns ranking third out of 30 MIP funds. But in the average of CAGRs of the three periods it ranked ninth. MIP fund managers are open to changing their equity exposure levels as frequently as they desire depending on their views. This subjectivity, and the inherent risk in equities, can make MIPs deliver much better than pure debt funds when the markets are rising and much worse when the markets are sliding or stagnant.

Investors need to be, therefore, cautious before jumping in the MIP bandwagon.

 

-----------------------------------------------------------------

 

Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now