Fund houses witness redemption due to tepid performance by MIPs
Mumbai: Monthly income plans (MIPs) which aim to offer higher returns than debt funds are losing sheen as the market continues to remain volatile. MIPs are facing tough competition from fixed maturity plans (FMPs) which are offering better returns as the interest rates climb. Fund officials say that MIPs are seeing redemptions due to subdued performance lately.
“MIPs were giving up to 16 per cent returns during a one-year period six months back. Now it has come down to seven to eight per cent. Till last year, MIPs were adding thousands of crores of corpus but they are now losing that money,” says Aashish Somaiya, Head - Retail Business, ICICI Prudential Mutual Fund.
MIPs invest a major chunk of their corpus in debt instruments and 15 to 20 per cent in equities. The equity and debt portions of the corpus are managed actively to generate superior returns. As the market slides, returns from MIPs can suffer.
The category average has been a modest 3% and 5% in the last 6-months and 1-year periods. Similarly, the average annualized returns have been 7% for the three year and five year period though the better performing schemes like HDFC MIP-Long Term Plan and Reliance MIP have generated 12 and 15 per cent annualized returns respectively.
“Investors should stay invested for at least 18 month to three years in MIPs because it contains market risks. These are medium to long term objective products,” says Mahhendra Kumar Jajoo, Executive Director, CIO – Fixed Income, Pramerica Mutual Fund.
In general, MIPs invest in instruments having maturity period of one to three years. The returns tend to be in sync with market movements as up to 20 per cent of the corpus remains exposed to equities. Benchmarked against CRISIL MIP Blended Index, MIPs aim to offer regular, though not guaranteed, payouts on a monthly, quarterly, half yearly or annual basis.
“MIPs give debt plus equity kind of return but it may increase volatility. Any MIP advised to a client should not be of less than three years and should fit into a prior goal which is in line with the tenure of maturity. MIPs should be positioned correctly,” says Sumeet Vaid, Founder/MD, Ffreedom Financial Planners.
The mutual fund industry has 51 MIPs with AUM of Rs. 13,668 crore.
