The Hindu Business Line : PruICICI Income Multiplier Fund: Hold

INVESTORS in PruICICI Income Multiplier Fund can stay with the fund. Its performance since its launch in February 2004 has been encouraging, and far superior to that of many monthly income plans.

This confirms the theory that without the pressure of having to pay dividends each month, a portfolio with a 20-30 per cent equity exposure will comfortably deliver attractive returns for an investor seeking regular returns.

Similar to monthly income plans, Income Multiplier invests about 20 per cent in equities and the rest in debt and cash.

The fund is an attractive option for an investor seeking to limit his exposure to equity to less than 30 per cent.

The investment strategy has the potential to turn into a winning strategy for conservative investors.

A 30-per cent allocation would meet the lower risk criteria of investors. The mutual fund format would ensure tax efficiency.

The after-tax returns from debt portion of the portfolio would also not be inferior to that of small-savings schemes.

The only risk pertains to the management of the equity portion of the portfolio. As PruICICI's track record in this respect is sketchy, a substantial improvement in consistency would be required. Investors would have to take this risk.

Performance: In the past year, Income Multiplier registered gains of 15 per cent. This is higher than that registered by monthly income plans by at least one percentage point.

It is also nearly 6 percentage points higher than the gains registered by PruICICI Monthly Income Plan. A systematic investment plan of investing equal amounts every month in the Income Multiplier Plan has registered returns of 12.5 percent.

Portfolio: The stated objective of the fund is to invest predominantly in large-cap growth stocks. The fund will also maintain a diversified portfolio. The equity portion is thus being projected as less risky than equity schemes such as PruICICI Growth. This is also reflected in the higher price-earnings (PE) multiple of the equity component of the Income Multiplier scheme compared to the PE of equity funds such as PruICICI Growth.

This requires investors to stay invested for a longer period to reap the benefits of including equity in a portfolio.

At the end of June 2005, the scheme had invested about 21.5 per cent in its equity portfolio although it can take the exposure to a maximum of 30 per cent. The fund also had a high cash position of nearly 11 per cent. Almost the entire debt portion was invested in securities with a term to maturity of less than a year.

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