With the incentive structure turning attractive and the equities market clocking gains this year, monthly income plans (MIPs) have accumulated assets at a rapid pace in the past few months.
The total assets of all MIPs have grown by about 115% between December 2009 and September 2010. HDFC MIP Long Term and Reliance MIP—which have grown by 269.6% and 783.9% year-on-year, respectively—are now among the top 15 open-end funds in the country with a total of Rs 16,599.70 crore assets under management .
MIPs, which invest mainly in government securities and corporate bonds, typically have 10-30% exposure to equity. Several MIPs have increased their exposure to equities and the buoyancy in capital markets has brought good gains for them. While the category has given about 7.5% returns in the past year (till December 7), the best ones have given double-digit returns.
"MIP is a great bull market product. Equities have done the magic for MIPs," says Raghav Iyengar, executive vice-president, ICICI Prudential Mutual Fund (MF). The markets have gained nearly 18% in the last one year (till December 7), pushing up returns from MIPs.
"Whenever there is an upswing in equity markets, MIPs see an increase in sales," says a top industry official. "Investor experience in equities has not been that great in the past two years. They (investors) are looking for capital protection. MIPs' marginal exposure to equities does just that and helps satisfy the needs of low-risk investors," say an industry official.
"Investors tend to be cautious when the markets are up. Since the fixed-income portfolio of MIPs is quite secure, they have lapped up MIPs in a big way," said an official. Though equity schemes and even fixed-income products have seen outflows, MIPs have seen only inflows in the past six months, he said.
Moreover, the incentive structure for MIPs is much better and has contributed to sales in a big way. Many fund houses offer upfront commission of 1-1.25% to distributors for selling MIPs. The upfront commission for some of the equity funds is similar or lower (0.5-1%). "It becomes easier and lucrative for distributors to push these products," says Dhruva Raj Chatterji, senior research analyst, Morningstar India, an independent investment research firm. Though MIPs have done well in the past one year, it would take a hit if the markets start declining. " Market volatility would be bad for MIPs. There should be reasonable monthly and quarterly gains for MIPs to make payouts," says an official. MIPs make dividend payouts on a monthly basis. But returns depend on availability of surplus.
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'I made my money by selling too soon.'
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