Monthly Income Plans: Performance slides on equity allocation

Monthly income plans (MIPs) have under-performed pure debt funds due to dismal performance of the equity portfolio.

The average one-year return of MIPs, which invest around a fifth of their portfolio in equity and the rest in debt, was 6.13 per cent.

Thanks to losses in the equity portfolio, these funds couldn't match the returns of pure debt options (income, short-term and ultra short-term funds), which on an average delivered 9.3 per cent.

Out of 45 funds, around 20 funds outperformed the benchmark CRISIL MIP blended Index return of 6.45 per cent. DSP Blackrock MIP Fund, Taurus MIP Advantage Fund, Birla Sun Life MIP II-Savings 5 and BNP Paribas Monthly Income Plan were among the top performers over the one-year period. These funds returned between 8.7 per cent and 10 per cent in a year.

laggards

The laggards for one year include Sundaram MIP-Moderate, LIC Nomura Monthly Income Plan, Sundaram MIP-Aggressive and ING MIP Fund, which gave a return of around 2 per cent in a year.

What made the difference to returns was the fund's allocation to equities. Lower investments in equity (less than 10 per cent for most of the last one year) by funds such as Tata Monthly Income Plan, Birla Sun Life MIP, Canara Robeco Yield Advantage Fund and Taurus MIP led to better performance. On the other hand, Sundaram MIP-Aggressive, HDFC Monthly Income long-term plan, UTI MIS Advantage Plan and Religare Monthly Income, which under-performed the benchmark, had high equity allocation.

Across funds, the debt portfolio performance was more or less similar.

While the short-term rates were at elevated levels for the good part of the year, the long-term bonds caught up during the second half with yields declining and prices rising.

Versus active investment

Had an investor separately bought equity and debt funds in the proportion 25 per cent equity to 75 per cent debt, the returns would have been 5.3 per cent.

If the equity allocation is reduced to 15 per cent, the return would have been 7 per cent (assuming average return for equity diversified funds and debt funds).

This indicates that active allocation of debt and equity separately hasn't given any better return as compared with the average return of 6.13 per cent for all MIP funds.

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