The Hindu Business Line : Investors stuck as MIPs skip dividends

MOST Monthly Income Plans (MIPs) have skipped dividends for June (for the monthly option) and for the April-May-June quarter (under the quarterly option). Four months ago, investors were busy trying to figure out which monthly income plan to invest in, in order to buy amuch desired four-wheeler or club membership. For those who did, would now have to find alternative sources of funds to pay off EMIs and monthly membership fees.

Debt markets yields have reduced considerably and the volatility in equity markets are making it difficult for fund managers to whip up positive returns. Only MIPs that have had sufficient time to build up buffers have managed not to skip dividends. Even these would be forced to post nil dividends if markets do not look up in the near future. "We have enough buffer to last the next two to three months, at the most," said an AMC official.

Also, since MIPs are debt-oriented hybrid funds 12.5 per cent dividend withholding tax for retail investors and 20 per cent dividend tax for corporate investors apply. Further, funds have to pay 0.15 per cent turnover tax on the underlying securities. This makes the economics of the fund even more skewed.

"Investors who got into these funds at the height of the MIP fever are stuck now. A lot of corporates had also invested in MIPs as they were positioned as a step-up from pure debt funds," said Mr Ranaa Kumar, Karvy Distribution Services.

"MIPs were great products three months ago. Current market conditions are not conducive to them. We have not missed any dividends so far, but in terms of inflows, there is pressure on MIPS," said Mr Ravi Sharma, Vice-President - Marketing & Communication, Birla Sun Life AMC.

Some fund houses continue to be optimistic about MIPs. HSBC Asset Management, for example, is now running its advertising and outdoor campaign for HSBC MIP. "We feel that it is still a good segment to be in. In short periods of time there are going to be issues on dividend. We inform all our investors to enter MIPs with a one-year plus horizon. We will dynamically manage the debt equity mix to ensure optimum returns," pointed out Mr Sanjay Prakash, Chief Executive Officer, HSBC AMC.