The higher average term to maturity of Alliance MIP's debt portfolio appears to be mainly due to the relatively larger exposure to Government securities (gilts).

Gilts consistently outperformed corporate securities between December 2000 and March 2003. Alliance MIP, with relatively larger exposure to gilts, would have benefited more than Templeton MIP. In terms of stock selection, Templeton MIP followed the strategy of investing substantially in large-cap stocks. In 2001, a bias towards IT, FMCG and Healthcare stocks was discernible. The allocation to equity changed in 2002 to include small and mid-cap stocks. However, the large-cap bias continues.

In contrast, Alliance MIP has consistently included small and mid-cap stocks in its equity portfolio. In particular, the presence of public sector banks in the portfolio of Alliance MIP and their absence in the portfolio of Templeton MIP may have contributed to the divergence in returns generated.

On a risk-adjusted basis, Alliance MIP's performance continued to be superior. The superior performance of Alliance MIP is also despite the fund charging higher expenses compared to Templeton MIP-Growth.

Looking ahead: For fixed income investors, MIPs suffer in comparison to conventional income schemes on three counts:

The debt portion of a MIP remains invested in securities with lower term to maturity than a typical diversified income fund.

The expenses charged to such schemes are also higher than that charged to typical income plans.

In addition, the equity portion of an MIP is concentrated in a relatively fewer number of stocks. This enhances the risk involved.

In this backdrop, the ability of MIPs to generate better returns, especially on a risk-adjusted basis, is subject to doubt. This is because the returns on the debt portfolio are likely to be much below that of a typical diversified income fund. In fact, Alliance MIP and Templeton MIP-Growth underperformed Alliance Income Fund and Templeton India Income Fund respectively. The volatility of the income funds has also been substantially lower.

A simple strategy of investing 10 per cent in a diversified equity fund and 90 per cent in a diversified income fund also generated better returns than the monthly income plans.

In this context, investors can consider exiting from Alliance MIP and Templeton MIP-Growth. Alternatively, they can invest directly in conventional debt and equity schemes in the proportion they desire.

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