Reliance MIP: Buy

Want a steady flow of income but can’t take high risks?

Reliance Monthly Income Plan (MIP) serves the cause well. It invests in debt to the tune of close to 80 per cent of its portfolio while parking the rest in equity.

The scheme has been extremely regular in paying out dividends in both its monthly as well as quarterly options. It has also been able to deliver 2-3 percentage points higher than its category over the long term.

With expectations of the RBI cutting interest rates, the 10-year G-Sec has already rallied substantially, with yields dropping from 8.8 per cent levels to around 8.15 per cent.

Reliance MIP has been able to ride the debt market well across interest rate cycles and benefit from bond price rallies.

The scheme has delivered 24.3 per cent returns over the last one year and a healthy 10 per cent annually over the past five years.

It has been able to do better than peers such as DSPBR MIP, Franklin MIP and Birla Sun Life MIP Plan II – Savings 5. Investors can buy the units of the fund and take the dividend option for regular payouts.

Higher taxes not a worry Recent Budget announcements will keep investments in debt funds locked for three years to qualify for long-term capital gains. Also, the tax on dividend payouts is higher at around 28 per cent, up from 22-23 per cent earlier. This should not be a dampener as a longer lock-in would give time for the equity component to play out, besides giving indexation benefits.

Additional taxes notwithstanding, it would still be better to stick to a product that may help you edge past inflation without taking heavy risks.

Across rate cycles, whether in the turbulent times of 2008-09, 2011-12 or in the choppy bond markets of 2013, Reliance MIP has been a consistent performer.

It actively manages the duration of its portfolio so that it is able to take the right yield call.

The fund’s current yield-to-maturity (YTM) is at a healthy 9.25 per cent. It has increased the maturity profile from 6.8 years to 8.9 years over the past couple of years.

In its debt portfolio, sovereign bonds account for nearly 30 per cent of the portfolio.

Highly-rated corporate bonds of Reliance Jio Infocomm, Kotak Mahindra Prime, IDBI Bank, Tata Motors and Sesa Sterlite, among others, find place in the portfolio. Although equity exposure is taken to the tune of 20 per cent, it is fairly diffused and spread across 25 stocks. The portfolio does not carry heavy risks.