Safe bets, sound returns

Investors looking for a steady income that can outpace inflation over the years could buy units of ICICI Pru Monthly Income Plan (MIP).

It invests mostly in highly rated debt instruments and government securities, while parking a minor portion in equities to provide the kicker in returns.

Over one, three and five-year timeframes, ICICI Pru MIP has done better than its category by a margin of 1-3 percentage points. In the last three years, it has delivered annual returns of 11.9 per cent, placing it in the top quartile of schemes in its category.

In the last one year, it has done marginally better than even a top-notch fund such as Canara Robeco MIP.

Despite the fact that debt schemes now have a lock-in of three years to qualify for long-term capital gains with indexation benefit and also higher tax on dividend distribution (over 28 per cent), it still is an useful avenue for generating income.

For one, after indexation, there may be very little tax payable. Also, for those in the lower tax brackets, it would be advisable to park a portion of their surplus in these schemes to generate regular income. An alternative would be to take a monthly interest payout from bank fixed deposits and move the interest amount into quality MIPs on a regular basis.

Given that interest rates are likely to come down over the next one year, there is likely to be a rally in bond prices which is beneficial for MIPs and other debt funds.

ICICI Pru MIP has been fairly regular in its payout and offers monthly, quarterly and a half-yearly dividend options.

Portfolio and strategy

The fund generally invests 85 per cent of its portfolio in debt and the rest in equity. In the debt portion, government securities dominate.

In the last one year, the proportion of G-Secs in the portfolio increased from 30 per cent to over 48 per cent currently. The 10-year G-sec yield has reduced from over 9 per cent levels to about 7.7 per cent currently, thus resulting in substantial gains for ICICI Pru MIP.

The maturity tenure of G-Secs ranges from eight to 12 years currently.

Corporate securities, which account for over 34 per cent of the fund’s portfolio, comprise investments in well-established names. Debentures, NCDs and other instruments of Reliance Gas Infrastructure, Tata Steel, IDBI Bank and Indian Hotels are some of its key investments.

The equity portion is dominated by names mostly from the large-cap space with some select picks from the mid-cap segment.

Though not a chart topper, ICICI Pru MIP may offer above-average returns over the long term.