Monthly income schemes are back in vogue. Stellar performance backed by a rally in equities along with the need to book profits have been the main drivers for investors putting their money in these schemes. As per Value Research, monthly income plans (MIP) have delivered average returns of 15.52% for the year ended January 8, 2010. Those who are looking for a market-linked solution that provides a monthly income or those who intend to invest into schemes with moderate to medium risk can look at MIP. To serve this audience, IDFC mutual fund has launched a monthly income plan.
The scheme is an open-ended fund of funds that aims to invest in units of debt mutual funds (income fund and liquid fund) and units of equity MFs. The investments in debt schemes are expected to generate regular returns while the investments in equity funds will bring in long-term capital appreciation.
The fund manager will invest 65-100% of the money in units of debt mutual fund scheme. He will park 0-25% of the assets in the units of equity mutual fund schemes. The scheme's investment mandate also allows the fund manager to invest 5-10% of the money in the money market instruments.
The scheme differs from traditional mutual fund MIP, which is a familiar product for MF investors. In traditional MIP, the fund managers invest in a judicious mix of debt instruments and equity instruments. However, in the IDFC mutual fund offering, the fund manager will invest in a mix of debt and equity MF schemes.
As an investment process, the fund manager will shortlist a universe of schemes, both in equity and debt taking into account quality of the sponsors, assets under management, performance of the scheme and investment objective. The fund manager will take a call on asset allocation, depending on his views on the market and risk-return consideration. Asset allocation will be reviewed on a monthly basis. He will invest in a mix of schemes from the selected universe and monitor their performance.
The scheme does not guarantee any return. The scheme is benchmarked against CRISIL MIP blended index. Minimum investment in the scheme is Rs 5,000. But for systematic investment plan, the scheme asks for a minimum of six instalments of Rs 1,000 each. You may choose to invest in either growth or dividend option as per your needs. To discourage short-term investments and encourage long-term investments, the fund house has introduced an exit load of 1% if investors choose to redeem before completing one year from the date of allotment of units. There is no entry load on the scheme and the units are available at Rs 10.
The fund-expense ratio, being a fund of funds, is capped at 0.75%. Here, a point to note is that these expenses are over and above the expenses charged by the schemes in which the fund manager intends to include in the scheme portfolio. This will certainly have a bearing on the returns delivered by the fund. Active rebalancing of the scheme on a monthly basis, taking into account the market conditions and fund manager's view, will influence its performance. The investment style of the fund manager can be better understood with time.
The scheme sounds good for those who are looking for a solution that allows the investor to combine the benefits of assets allocation and manager diversification into a single product. The scheme may offer investors healthy risk-adjusted returns.
Why Invest:
To earn a market-linked return at regular intervals
Why Not Invest:
Being a fund of funds, it leads to duplication of costs
Clarification
With reference to the story – "Looking beyond FDs for decent returns" that appeared on January 11, 2010, returns mentioned under the 'Senior citizen portfolio' table refers to quarterly returns and not monthly income as mentioned. The error is regretted.
