HOME > MUTUAL FUND > CITRUS ANALYSIS
  CITRUS ANALYSIS
MUTUAL FUNDS NEWS
The Curious Case of MIPs
Thu, Jul 09, 2015
Source : Jeni Shukla, Citrus Interactive

A Monthly Income Plan (MIP) is a hybrid mutual fund. It invests a majority portion of its corpus (to the tune of 70-80%) in debt instruments and the remaining amount in equity. Because of the high debt component MIPs are on the lower end of the risk spectrum. These funds intend to provide regular income to the investor who opts for the dividend option. One can opt for monthly, quarterly, half-yearly or annual dividends depending on the options provided by the scheme.

Calendar year 2013 was particularly bad for MIPs. The average return delivered by the MIP funds category was almost 5%. However, these funds have made a strong comeback. In calendar year 2014 most funds gave double digit returns with the top 30% funds giving more than 20% returns!

Calendar Year

2010

2011

2012

2013

2014

MIP Category Average

6.7

2

12.9

5

17

Best performing

12.8

7.1

19

12.3

32.4

Worst performing

1.3

-4.3

6.8

-0.1

8.7

  Figures in %

Even in terms of rolling 1 year return, these funds look very impressive considering their risk-return profile.

Top 10 performing MIP Schemes in the last 1 year ending 30th June, 2015:

MIP Scheme Name

1 Year

2 Year

3 Years

5 Years

ICICI Pru Child Care Plan-Study Plan

21.4

23.7

19

14.3

Birla SL MIP II-Wealth 25

17

17.7

15.3

11.3

Sundaram MIP-Aggr Plan

15

12.9

11.6

8.3

Tata Retirement Sav Fund - Cons Plan

14.6

14.8

12.2

NA

Franklin India MIP

14.3

13.3

13

9.9

SBI Magnum MIP

14.2

10.8

11.4

9.1

SBI Magnum MIP-Floater Plan

13.9

13.6

12.3

10.5

Tata MIP Plus Fund

13.8

12.5

12.2

9.3

Reliance MIP

13.6

13

12.1

9.9

ICICI Pru MIP 25

13.4

14.2

12.8

10.2

Category Average

10.4

11.2

10.3

8.6

Sensex

9.3

19.6

16.8

9.4

  Figures in %; Returns above 1-year are in CAGR (Compounded Annual Growth Rate) terms

“Given the strong improvement in key macroeconomic parameters, favorable events like fall in commodity prices, interest rate cuts, policy initiatives by the central government etc. both the fixed income and equity asset classes registered superior performance over the last 1 year. Reliance MIP with investments in both these asset classes benefitted from the same. Usually we attempt to generate consistent returns through the fixed income portfolio while the equity allocation is positioned to generate superior returns or alpha”, say Amit Tripathi and Sanjay Parekh who manage the debt and equity portions of Reliance MIP respectively.

When we analyzed the dividend payouts by the MIPs which have the dividend option, we found the average annual dividend yield in the last 1 year (ending 30th June, 2015) to be 7%. In other words, if you invested Rs. 10 lakh in a fund you would have got a dividend of Rs. 70,000 in this period. 63% of the funds gave more than 7% dividend yield. There were 12 MIP funds whose dividend plans yielded more than 9% dividends in this period. Hence the investors got fixed deposit – like monthly income along with some appreciation in the NAV due to good performance by both the asset classes.

Between 30 June, 2014 and 30 June, 2015 S&P BSE Sensex has given a return of 9%. Also in the last 12 months we have seen the 10 year Government security bond yield fall by 88 basis points (1 basis point is one-hundredth of a percentage point). The funds with the longest duration debt papers benefitted the most from this softening of yields.

According to Dinesh Ahuja (Fund Manager – SBI Magnum MIP), “SBI Magnum MIP has a Debt versus Equity allocation of 85% and 15% respectively. Over the last one year bond yields have witnessed a gradual easing, which has contributed to the returns but most of the alpha has been generated from equity. Keeping in mind the improving macro dynamics of India (Improving current account /fiscal/ stable inflation) we expect both equity and debt segments to perform in the next couple of years. Thus, MIP’s could be a good investment strategy from a 3 year perspective.”

What is curious is that the last one year performance of MIP cannot be easily explained by the blended return of the equity and debt portions. Nevertheless, one thing is surely evident from the annual returns of the MIPs that they do manage to capture a large part of the equity rally in a bullish market and barring a few exceptions, are much better positioned to protect the wealth of investors in a market down cycle.

Amit Tripathi and Sanjay Parekh said - “We remain optimistic on the prospects for the domestic economy and believe all the key building blocks are in place for strong economic recovery over the medium term. Both the equity and fixed income asset classes are expected to benefit from the same. We believe the product with its mix of debt & equity allocation presents an interesting investment opportunity for conservative investor seeking better than pure debt fund returns.”

One of the aspects investors need to be mindful of is that MIPs are taxed like debt mutual funds. Hence, these funds attract short term capital gains tax according to the income tax slab for an investment horizon of upto 3 years. Beyond 3 years long term capital gains tax is applicable – 20% with indexation benefit.

Our View

MIPs might continue to benefit from softening interest rates over the next 12 to 18 months as well as growth in the equity markets. We see that the MIP performance varies widely among peer group funds. Hence the fund manager’s ability to take the right duration calls and the equity fund manager’s ability to pick the right stocks becomes important. For those interested in receiving regular income from MIPs must also take into account the historical track record of dividend payments and dividend yield.

 
|
|
|
|
|
|
|
|
|
|
|
 
blog comments powered by Disqus
  RELATED NEWS >>
June 21th , 2018
SBI Small Cap: Back in Action
read >>
June 13th , 2018
Axis Bluechip Fund: Large Cap Winner
read >>
May 27th , 2018
HDFC Small Cap Fund: Small Cap Winner
read >>
May 22th , 2018
Axis Focused 25 Fund: Successful Focused Strategy
read >>
Most Viewed >>
May 06 , 2024
FPIs exercise caution amid US yield surge, awa
May 07 , 2024
Six-week long election leaves RBI with liquidi
May 08 , 2024
Sebi rejects NSE proposal to extend trading ho
May 08 , 2024
Heavyweights pull down Nifty for third day; Se
EXPLORE
© CITRUS INTERACTIVE
Designed & Developed Accord Fintech Pvt. Ltd.