Owing to weak returns in debt schemes and increasing risk aversion of investing in equity schemes due to volatile market conditions, retail investors are eyeing monthly income plans (MIPs) offered by fund houses.
In the last few months, the asset under management (AUM) of MIPs has almost doubled due to the inflows in the schemes. For example, the AUM of Birla Sun Life monthly income plan in August 2009 stood at over Rs 108 crore that surged up to approximately Rs 251 crore in January, a rise of 131%. The AUM of Reliance monthly income plan for January stood at over Rs 2,783 crore compared with Rs 343 crore in August 2009. Also, it has generated a return of over 8.15% in the last six months.
Essentially, MIPs invest in debt instruments as well as equities. The objective of these schemes is to provide regular income to an investor through the dividend route. Investment in the debt portion provides for the monthly income whereas investment in the equities provides for the extra return which is helpful in minimising the impact of inflation.
According to Valueresearch CEO Dhirendra Kumar, ?Inflows in monthly income plans have increased due to weak returns given by income schemes. Currently, income schemes provide 4-6% returns. In the long run as the interest rates are likely to go up the outlook of the MIP are looking very bright.?
According to Anand Shah, head-equities at Canara Robeco Mutual Fund, ?Returns from the MIPs are higher than fixed deposits in banks. Hence, good sum of money is coming in the MIPs in the last few months. Investors need steady income and MIPs provide them good returns over a period of time.?
Returns from MIPs have been steady and have beaten most of the debt based funds over several year time frames. Though equity based schemes would have outperformed MIPs, they have a lower risk profile and compare well against fixed deposits. Over the year MIPs on an average have returned around 15% returns and the best available return from fixed deposit is around 6%.
