MIPs flavour of the season

Increased exposure to equity drives up demand

A successful track record of rewarding investors is attracting the latter to monthly income plans (MIPs). And, fund houses are rushing to launch more schemes to tap this surge in investor excitement.

HDFC Mutual Fund, which recently closed subscriptions for its MIP, mobilised Rs 915 crore from 70,000 applications.

Corporate subscriptions to the issue have been less than 15 per cent, implying that the bulk of the investment is coming from retail customers.

HDFC MF is not the only one - a whole host of other funds are either in the middle of MIP launch plans or have plans to launch it in the near future.

While MIPs from Sundaram MF and Principal MF are currently open for subscription, IL&FS MF, Cholamandalam, and Reliance MF are in the process of scheduling their MIP offers.

One reason, industry sources said, for the surge in demand for MIPs is that the current breed of MIPs are putting in a little more into equities.

As against the earlier cap of 15 per cent in equities (and the rest in debt), the current bunch of MIPs are reported to be putting in 20-25 per cent in equities for that "added zing".

As a result, industry sources said, MIPs being launched now are expected to post returns between 7 to 10 per cent on an average though, in recent months, existing MIP have given returns as high as 19 per cent in some cases.

The rush for MIPs makes sense in an era of declining interest rates, sources said. The higher equity cap is expected to give that extra kick to the returns which an ordinary debt fund or even a MIP with a lower equity allocation will give.

Fund managers are taking advantage of the current rally in the market to maximise returns for their investors, especially those who are looking for steady monthly returns from their investments.

Unlike pure equity funds, monthly plans have the advantage of offering fixed monthly returns to the investors. In times of an equity boom, fund managers can churn their portfolios optimally and funds do declare large and hefty pay-outs for their investors.

In pure debt funds due to the declining rates of interests, returns have come down to as low as 5 per cent. This is not sustainable for those class of investors who look to augment their existing salary incomes.

The marketing head of a private sector fund said that the appetite of the investors has just been whetted and there is a lot of demand for the MIPs.