Distributors are being offered 1% to 1.25% upfront commission to push MIPs as equity markets remain volatile
Mumbai: Fund houses are pinning their hopes on MIPs as the uncertainty in the market prevails. Advisors are being offered upfront commission to the tune of 1% to 1.25% in MIPs which is equivalent to upfront commission offered in equity schemes. But advisors are not taking an active interest in selling MIPs because investors have burned their fingers last year when the MIP category posted 3% returns, barring a few funds which generated six to eight percent returns.
MIPs have put up a slightly better performance over a two year period by generating an average of 6% returns.
“Fund houses have been pushing MIPs because it is easy to market them now. Equity markets are volatile so there is a preference for debt. Distributors get a good upfront commission on MIPs,” said an industry official.
According to sources, HDFC MIP Long Term Plan and Reliance MIP have been successful in growing their assets. HDFC MIP LTP had an AAUM of Rs. 9,779 crore as on June while Reliance MIP’s AAUM stood at Rs. 7,565 crore during July.
“Fixed income schemes look good from one to two year perspective because interest rates have peaked and equity valuations are also good. MIPs are better if investors don’t want to take full exposure to equities,” says Ajit Menon, EVP – Head of Sales, DSP BlackRock AMC.
Experts say that distributors can recommend balanced funds to investors who have a slightly higher risk appetite as these funds typically invest 60% of their portfolio in equity and the rest in debt which provides a cushion if markets fall.
MIPs typically invest 80-90% of their portfolio in debt and the rest in equity. The Sensex has been on a free fall since the peak of 21,109 in November 2010. Any slight movement in equity markets can skew the returns on MIPs. The three month average return on MIPs is two percent. During the same period, the BSE Sensex has fallen 13% since June 2011.
“The returns are bad in August due to the fall in market. Once the market recovers, I think most of the MIPs can give returns in the range of nine to eleven percent. Investors can invest in MIPs in a staggered manner over a week to benefit from the volatility as further downside is expected. An investment horizon in the range of 18 to 24 months would be ideal,” says Amar Pandit of My Financial Advisor.
