The Hindu Business Line : Weak market affects MIPs too

MONTHLY Income Plans (MIPs), the darlings of the asset management industry till recently, are currently going through a bad patch in terms of both performance and new inflows, a trend that prompts us to take a fresh look at them.

But before we commence, let's get a basic thing straight. It's not that the MIPs are suddenly going out of fashion. On the contrary, they still hold a lot of attraction for many investors. However, some sections are thinking twice before committing to these plans. Fund circles are working overtime to retain the market's interest in their monthly income products.

A whole breed of MIPs is currently available and investors may actually find it difficult to pick the best from a bunch of competing products. The discerning investor is expected to separate the men from the boys - the top performers from the also-rans. Some of the plans have obviously done very well, a commendable job considering the risks associated with a rather volatile market.

What has set these players apart is the performance of the equity portion of their portfolios. As is well known, these plans can (and do) use a small dose of equity to act as a kicker for a larger debt component. Some of the new generation schemes — the likes of Principal MIP Plus — in fact have a greater room for equity investments. So what's the latest situation on the MIP front? The latest slump in the stock market has obviously arrested the upbeat mood. Those who have entered it in recent times are afraid of losing money in the short term - a possibility that may turn out to be quite real if the market corrects further.

Ordinary MIP investors are probably playing safe at this moment.

For those who are not in a hurry, staying invested might be a good idea. But if you are there for a shorter duration, easing out of it might be a better option, especially so if you have already recorded decent profits. One can always come back when the situation stabilises and the confidence level rises.

Fund houses would like investors to believe that MIPs are a smart choice for those who are essentially hooked to debt schemes (but would also do with a measured exposure to equity). The plans that have done comparatively better include the ones managed by Alliance, Templeton and SBI MF. On a one-year basis (as on February 29, according to Value Research), MIPs have given average returns of about 14 per cent. Alliance MIP and FT India MIP, with 20 per cent and 18.19 per cent respectively, sit at one end of the spectrum. At the other, you have the likes of LIC MIP (9.64 per cent) and SUN F&C MIP (7.99 per cent). Also, Templeton MIP (Monthly Dividend) has given a lowly 5.27 per cent.

It will be sometime before the asset management sector catches hold of the next big winner. Till that happens, MIPs will remain a very special class of savings products.

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