The Hindu Business Line : MIP returns lose steam as equities turn weak

MONTHLY Income Plans seem to be coming off their high pedestal. With investor sentiments turning weak, returns generated by MIPs are shrinking by the day even as the asset management industry tries its best to sell them.

MIPs, which are chiefly debt-oriented with limited room for equities, have turned in a negative 0.22 per cent in the one-month period ended January 31.

Their performance does not compare favourably with certain categories of pure debt funds, including liquid and short-term options.

The numbers, distribution sources indicate, may temporarily turn a section of investors away from MIPs, especially if current market conditions continue.

The reason for the sudden downturn is clear: Equities, their small contribution to MIP portfolios notwithstanding, are pulling down the overall returns.

Tackling the equity market, which has displayed great volatility in the past few weeks, has become a difficult task . This is clear from the way in which the broad indices have moved in recent times.

The BSE Sensex and the NSE Nifty have both provided negative returns — 2.45 per cent and 3.72 per cent respectively for January 1.

The trend, however, is not likely to stop distributors from encouraging investment in MIPs. Mr Sandeep Parwal of SPA Capital agrees that these schemes have been lately exposed to short-term risk by way of equities.

He, however, adds that equities are positioned to enhance returns from products that are otherwise heavily exposed to fixed-income instruments. "Yes, corporate money may not be coming to MIPs right at this moment. But we hold a completely different view when it comes to retail investors with medium- to long-term horizon," he says.

MIPs, according to fund houses, had a rollicking time in 2003. Mr Binay Chandgothia, debt fund manager at Principal, observes these schemes made the most from a northbound equity market.

"MIPs scored seriously over conventional debt products last year with an average return of over 14 per cent," he notes.

For the record, their three-month and six-month averages (as compiled by Value Research) stand at 2.77 per cent and 7.94 per cent respectively - figures that beat returns provided by all debt fund categories by a wide margin.

Sources also point out that there is a renewed attempt by MFs to push MIPs.

This is obvious from the product innovations worked out by some of the leading players. Innovations have come in the shape of schemes with higher-than-usual equity content, a trend that was started by Principal and followed up by a few others.

Mr Sanjay Prakash, CEO of HSBC MF, mentions that these schemes will have to live up to even greater expectations in 2004.

"With returns from debt funds remaining under pressure and new IPOs being planned, MIPs will continue to be a happening category this year too," he feels.