Mutual Funds

Add the equity kicker

Bhavana Acharya | Updated on November 22, 2014

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If stocks do well, expect dividends from this fund to pick up too



The turnaround in the stock market may prompt quite a few investors to rush headlong into equity funds. But if you are of a conservative bent of mind, play it safe by just adding a small equity ‘kicker’ to your returns.

Canara Robeco Monthly Income Plan is a good option within the MIP category, which invests primarily in debt, with a small portion allocated to equity.

The fund invests at least 75 per cent of its portfolio in safe debt instruments, with the remaining in large- and mid-cap stocks.

While monthly income plans don’t necessarily have to pay dividends every month, Canara Robeco MIP’s track record has been fairly consistent.

It’s also stayed put in the top-quartile of funds in its category across timeframes. Investors with a medium-term horizon wishing steady returns can invest in this fund.

In the one-, three- and five-year periods, the fund has beaten its category average by a healthy margin. It is benchmarked against the CRISIL MIP Blended Index. Its recent performance has put it ahead of peers such as Reliance MIP, HDFC MIP (Long Term) and UTI MIP.

Portfolio

From 2012 onwards, portfolio equity holdings have rarely dipped below 20 per cent, given the run markets had.

Large-cap stocks form the majority of holdings, with a few quality mid-caps. Sector calls have been timed reasonably well, such as stocking up on software from mid-2012, keeping a steady hand in pharma stocks from 2009 and pruning banking shares in mid-2013.

In its debt portfolio, the fund usually has kept to a short-term average maturity of less than two years.

Most investments were made in commercial paper, certificates of deposits, and corporate debt. Instruments invested in usually hold the highest credit ratings.

For instance, Canara Robeco has invested in corporate debt from companies such as REC, HDFC, or PFC, which carry AAA credit ratings.

But of late, the fund has moved to longer-term maturity profile, investing in long-term Government securities from September 2013 onwards; yields turning attractive following the debt-market tumult in mid-2013.

This holding hit a high of 32 per cent in December 2013, though it dropped to 16 per cent by April.

Canara Robeco MIP’s April portfolio has a healthy yield to maturity of 9.23 per cent, and a 3.8 year average maturity period.

Published on May 18, 2014

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