The Hindu Business Line : Can MIPs make guaranteed returns?

IN the world of mutual funds, `monthly income' has always been a great winning concept. Thanks largely to Unit Trust of India, monthly income plans (MIP) — especially those much-maligned, guaranteed-return schemes — have had a huge following. The MIP domain got a bit crowded when private-sector fund houses entered the scene with their own versions of the concept.

While MIPs come in all shapes and sizes, their basic tenet remains the same: earn steady returns from fixed-income investments and offer regular payouts . The bulk of an MIP's assets are in debt, but the average player is free to invest 10-15 per cent in equities.

In fact, the one factor that can set an MIP apart from its peers is this freedom to dabble in equities. Fund circles say that the `equity kicker' can truly become a blessing in a rising market. In practice, however, not all funds have been courageous enough to stay put near the 15 per cent ceiling for long.

Let's check the present crop of MIPs from private fund houses. Among them are schemes from Alliance, Birla, IDBI Principal, SUN F&C, Reliance and Prudential ICICI and Templeton. With most of them, the current NAVs (in growth options) are in the Rs 10-13 range.

Fund managers, without exception, take extra pains to point out that the modern-day MIP does not guarantee or assure anything to the investor. This, one feels, is a collective effort of sorts, made to tell investors that the good, old days of guaranteed returns are over.

How does the investing public look at MIPs at this point? As a section of distributors indicate, these schemes have largely failed to grab market attention in recent times. On the mobilisation front — if we consider mobilisation statistics as an indication of a fund's popularity — the numbers are not terribly exciting. The larger MIPs include those from Alliance, Pru ICICI and Templeton.

The figures notwithstanding, monthly income still has a definitive market in India. What the MIP space needs are more entrants and good performance by those who have already arrived. What it does not need are slip-ups leading to skipping of payouts. A well-known fund once did exactly that, much to the dissatisfaction of its investors.

Fundspeak

AT current levels, the markets are attractively valued, though languishing for want of a strong trigger and lack of investor interest. In this scenario, we would continue to maintain a bottom-up approach in our investments in order to identify potential winners

SBI Mutual Fund

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