Mutual Funds - Monthly Income Plans- Overview

Monthly Income Plans

Monthly income plans, or MIPs, as they are more popularly known, are a category of mutual funds that invest mainly in debt instruments. Only about 10-20% of the assets are allocated to equity stocks. But the very name – monthly income plan – is a misnomer, as these funds do not guarantee a monthly income. Like any other fund, the returns are market-driven. Though many fund houses strive to declare a monthly dividend, they have no such obligation.  

MIPs are launched with the objective of giving a monthly income to investors, but the periodicity depends upon the option chosen by the investor. These are generally monthly, quarterly, half-yearly and annual options. A growth option is also available, where the investors do not receive regular dividends, but gains in the form of capital appreciation.  

Suitability

MIPs are suitable for conservative investors who want to earn marginally better returns than a debt-only portfolio. Conservative investors generally remain invested in fixed income instruments, but sometimes they need returns that are above the inflation by a few points. Obviously, equity exposure is the best way to provide this meaningful return over the inflation. A MIP typically invests bulk of its assets in debt, while a small equity exposure is maintained to earn something extra.  

The Way Ahead

The market is close to its all-time high of May 2006 after which it witnessed a sharp correction.  It is likely to remain volatile and could also witness some profit-booking. Investors need to re-look and re-balance their investment portfolios. At these times, investors should reconcile with the fact that days for making easy money without compromising stability are over. MIPs can be a good option considering their exposure to debt instruments. These will help investors to maintain a low-risk portfolio and generate regular and stable returns. Stability, rather than flashy returns should be the priority for a typical MIP investor. And the MIPs, which have  shun aggression, cut equity exposure and stick to quality large-caps, are likely to achieve that objective.  

The performance of some MIPs with their exposure to equity in presented in the table below. The schemes cannot be compared only on the basis of their returns as each have a different level of equity in their portfolio. Investors need to choose a scheme with a level of equity they are comfortable with and balances their individual portfolios.  

Scheme	NAV	Fund Size	Equity exposure		Returns % (Absolute)
	( 04-Oct-06 )	(Rs Cr.)	(% of Net Assets)	No. of Scrips	1 Mts	3 Mts	6 Mts	1 Year
Birla MIP II - Savings 5 Plan	11.33	0.72	3.50	6	0.99	2.52	3.47	5.81
FT India Monthly Income Plan	19.97	64.7	19.59	28	1.14	5.09	3.09	7.74
HDFC Monthly Income Plan - STP	12.58	38.54	13.97	19	0.21	2.75	0.59	4.93
HSBC MIP - Regular	11.92	5.61	13.61	15	0.52	3.12	3.42	7.07
ING Vysya MIP Fund - Plan B	11.73	0.62	12.98	25	1.19	3.92	0.44	6.22
Kotak Income Plus	12.71	11.75	11.92	29	0.59	1.77	1	7.64
Prudential ICICI MIP Plan	18.3	55.08	14.35	28	0.97	3.58	2.99	10.29
Reliance Monthly Income Plan	13.31	39.25	18.82	8	0.93	5.43	4.45	12.31
SBI Magnum Monthly Income Plan	16.37	14.18	11.46	21	0.47	2.87	2.93	7.51
Sundaram BNP Paribas Monthly Income Plan	12.42	5.23	14.28	19	0.42	2.51	0.49	6.99

Source: ICICIdirect Research