The Hindu Business Line : MIPs losing their sheen?

Volatility in debt and equity markets in the recent past has resulted in negative returns for MIP investors, a scenario that has prompted some of them to refrain from making further allocations.

THE fact that monthly income plans have suddenly become somewhat unfashionable continues to trouble asset management companies.

They strongly feel that MIPs can still make a difference to an investor's overall returns, provided he or she stays sufficiently loyal to the plans in which investments have been made.

The situation has prompted the market to re-visit the MIPs, given the kind of popularity these had attained not very long ago and the number of people who had chosen to invest in the plans. Distributors are particularly vocal about the matter.

MIPs, laments SKP Securities, an intermediary in Kolkata, have suddenly turned pariah, their popularity in the second half of 2003-04 notwithstanding.

It actually happened after the post-election meltdown and the volatility that occurred in the wake of rising interest rates.

The plans, however, continue to be good asset allocation products. Around 85 per cent of a typical MIP is a fairly conservative debt play, while the rest is in equities. Equity exposure is said to be crucial - it is, after all, aimed at boosting the returns generated by the debt portion of the portfolio.

Volatility in debt and equity markets in the recent past has resulted in negative returns for MIP investors, a scenario that has prompted some of them to refrain from making further allocations.

Mind you, we are not even discussing those MIPs with a higher equity component; the likes of Tata MIP Plus can be discussed later at length.

These are a class apart, most of which were launched at a time when MIPs were really surging ahead in terms of popularity.

Distributors contend that these plans still hold some potential for investors, especially the conservative ones who are looking beyond those 100 per cent debt-oriented options.

They also talk about the performance of schemes such as Kotak Income Plus, which recorded a negative three-month return of 10.5 per cent (annualised, as on August 4). Interestingly, its score for the one-month period is 8.5 per cent.

The scheme has around 10 per cent in equities and is free to take up to 20 per cent exposure to stocks.

It may be mentioned here that Kotak Income Plus does not carry the `MIP' tag at all. But it is a hybrid scheme all the same, with its own unique debt-equity mix.

HDFC MIP (Long Term Plan) is another instance. It provided minus 7.7 per cent and 13.5 per cent respectively over three- and one-month periods.

And there are several other examples.

SKP Securities has dealt with the phenomenon in simple words: "The wound (generated) in the three-month period will be healed over time".

On another front, initial offers by MFs are coming thick and fast these days. This marks the end of a brief lull, the near-complete absence of new products.

A number of players are trying to collect money at the moment with their IPOs.

A few have just wrapped up their launch initiatives, while some others are expected to open their schemes in the days ahead.

The products concerned are not all on the debt side. There are a number of equity schemes as well.

The introduction of these schemes will only add to the diversity that already exists in the realm of asset management.

Feedback may be sent to nilanjan@thehindu.co.in

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