The Reliance Monthly Income Plan is a debt-oriented hybrid fund designed to provide regular income to investors in the form of dividends. The fund was launched on January 13, 2004 and is the second largest in the monthly income plan (MIP) category with managed assets worth Rs 5,918 crore, as of July.
Investment style
MIPs are a debt-oriented hybrid category, where a small portion of the AUM is invested in equities and the rest in debt and money market instruments. MIPs can be classified as conservative or aggressive, based on the stated asset allocation of the fund that varies between 0 and 30 per cent. Accordingly, Reliance Monthly Income Plan’s risk profile is moderate since its stated allocation to equity is 0-20 per cent. The fund is suitable for investors who are looking for returns greater than debt funds but, at the same time, are not willing to take the risk of an outright investment in equity.
Performance
It has had a compounded annual growth rate (CAGR) return of almost 12 per cent since its inception in 2004. The performance has been notable, especially in the last three years with the fund delivering 15.4 per cent returns. This is almost double the 7.7 per cent returns of the benchmark index (Crisil MIPEX) and 8.6 per cent returns by peers.
The fund also dynamically managed the duration of its debt portfolio to deliver consistently higher returns. For example, when yields started hardening in March 2008, the fund reduced the average maturity of its debt portfolio from eight years in March 2008 to 1.3 years in June 2008. Judicious reduction in portfolio duration ensured limited erosion of AUM during the credit-cum-liquidity crisis of 2008.
The fund subsequently capitalised on the rally in the debt market (benchmark 10-year yields dropped from around nine per cent to below five per cent) by increasing the average maturity of its portfolio to 10.3 years in December 2008. Further, the fund gradually reduced its average maturity when interest rates hardened again over 2009 and 2010 to around 2.5 years in July 2010.
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Dividend yield
The fund is also among the most consistent in its peer set in terms of regular dividend pay-outs. Over a five-year period, the fund has distributed dividends in 52 out of 60 months. The average dividend yield of the fund over this period is 0.88 per cent vis-à-vis a peer average of 0.76 per cent.
Portfolio analysis
Reliance Monthly Income Plan is a moderately aggressive fund with an average equity exposure of 16 per cent over the last three years. The fund varies its allocation dynamically between equity and debt, based on the managers’ view on equity and interest rates.
Over the three-year period, allocation to equity-related securities ranged from 6.8 per cent (November 2008) to 21.9 per cent (December 2007).
The debt portfolio is generally of good credit quality and is dominated by highest rated debt papers and government securities.
— Crisil Fund Services