With the markets remaining buoyant, monthly income plans (MIPs) have increased their equity exposure significantly. The best performing schemes in the category have nearly touched the mandatory ceiling and this has enabled them generate higher returns. MIP's typically have 10-30 % exposure to equity.
While a higher equity exposure has helped these schemes log in 6.4% to 8.4% returns since mid-October during which markets have traded within a band and with a largely upward trend, MIPs with lower equity holdings have remained laggards , analysis shows.
The net asset value (NAV) of top ranking MIPs touched their 52-week highs on July 22-23 and as a result many schemes have given dividends ranging from 1.5% to 2%. In all, four MIPs feature in the top 10 debt schemes for the six month period (till July 26). "MIPs have increased allocation to equity as there is much less uncertainty about the market (movement ) in the near term," says Lakshmi Iyer, head, fixed income and products, Kotak Mahindra mutual fund.
Moreover, the performance of the fixed income portfolio of MIPs was not in line with expectations in the past two months prompting fund managers to shore up equity allocations, she says. Some large fund houses have seen a significant increase in sales of hybrid and MIP products in the past year, say industry officials. Though MIPs have managed to ride on the market momentum now, equity allocations in the future would largely hinge on market direction, say industry officials.
Since MIPs, which invest mainly in government securities and corporate bonds, usually make payouts on a monthly basis they would not be able to take aggressive market calls, officials say.
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