Best Monthly Income Plan
Background of Monthly income plan
Monthly Income Plan or the MIP is basically a debt-oriented hybrid mutual fund where nearly three-fourth of the corpus is invested in debt instruments such as debentures, government securities, and the likes. The remainder is invested into equity with prime motive of capital appreciation. One of the main objectives of the scheme is to provide steady income at regular intervals. Like any other regular mutual funds, MIPs too offer two options — dividend and growth to an investor. While under the former plan, an investor is eligible for regular dividend payout out of the surplus; the same is not available in the latter where an investor’s dividend is re-invested.
At this point, it is important to highlight that it is not mandatory for a scheme, even if it is a monthly income plan, to declare dividends if it doesn’t have profits to distribute. The fund house may choose to skip pay out during a month/quarter in the absence of funds.
Should you invest in monthly income plan?
MIPs are best suited for people who want regular income such as retirees, housewives, and people who would want to get some returns paid out regularly in form of additional cash inflow through dividend option of these schemes.
We at WealthTrust have taken a deep dive in the Monthly income plan (MIP) and found the following three to be the best suited to an investor. The fund reviews and a brief snapshot is elucidated as under:
The scheme seeks to generate capital appreciation over the long term by investing in money market instruments. The fund has around 72 per cent invested in debt instruments followed by equity at 25 per cent while remainder constitutes for cash as of October 31, 2017.
The fund has delivered strong performance over a long term and has also returned positive absolute returns since inception barring 2008 when the market was going through turmoil. As of October 31, 2017, the assets under management for the fund are Rs 1,459 crores that has grown manifold from Rs 430.53 crores in 2007. In equity the company invests primarily in large cap companies with growth tilt and in debt segment the top holdings are sovereign bond instruments.
Further, the fund has a beta of 1.02 that indicates a balanced portfolio. This mitigates the risk of the fund when the market goes haywire. Further, the risk metric is also supported by comfortable standard deviation of 4.86 that indicates the volatility in returns over a long term.
Also, the Sharpe ratio (3 year) is 1.4 which is better than peers and indicates that the fund has better risk-adjusted performance and also indicates that higher returns do not come with an excess of additional risk. Overall, we believe this is an ideal fund for an investor who seeks to diversify his/her risk while maintaining a balanced approach in line with market.
The scheme seeks to generate regular income by investing in debt and money market instruments. The fund has around 55 per cent of debt exposure followed by 30 per cent in equities and remainder in cash.
The fund has generated considerable returns outperforming the benchmark and category over three-year, five-year and 10-year period. However, in recent times the scheme’s performance was subdued owing to some volatility seen in yield of debt instruments. The fund is fairly diversified with around 50-60 stocks and around 40-50 debt instruments.
Within equity portfolio of the fund, the fund manager invests primarily in large cap stocks with growth tilt. While within debt portfolio of the fund, the investments are primarily into sovereign backed securities. The beta of the fund is low than its peers at around 0.46. Over the past 10 years, the fund has seen considerable growth in assets under management (AUM) whereby the AUM grew from Rs 115.37 crores in 2007 to Rs 2196.77 crores.
The risk metrics for the fund is also good with standard deviation at 6.68 and a moderate Sharpe ratio at 1.3. Over the three-year, five-year and 10-year period the fund was consistently ranked in top 10 within its category though its categorical ranking has been a bit under pressure over the past 1 year. Overall, we believe the fund is good bet for investors seeking long-term gain from equity and debt market.
The scheme seeks to generate regular income while providing adequate liquidity from an actively managed portfolio comprising of debt, equity and money market instruments. As of October 31, 2017, the fund has 84 per cent of the corpus invested in debt market with equity accounting for 15 per cent and remainder being cash.
The portfolio is fairly concentrated when compared to peers with 20-30 stocks and 30-35 instruments in debt market. Over the three-year and five-year period the fund has outperformed its category returns and its benchmark. However, over the last one-year period the fund returns are lower than that of category and benchmark, but not very far off.
Within debt, which accounts for major chunk, the fund manager invests primarily in central and/or state government backed debt instruments where the risk associated is not material. The fund also invests in corporate bonds and debentures with high credit rating quality.
Within equity, like other peers, the fund invests in high quality large cap stocks that provide growth tilt. The fund manager seeks to maintain a moderately balanced portfolio as reflected in the beta of around 0.65 which works well in times the market is less volatile as it rewards over mid-to long term horizon.
Over the past 10 years, the fund has seen considerable growth in assets under management (AUM) whereby the AUM grew from Rs 88.29 crores in 2007 to Rs 1558 crores. The risk metrics for the fund is healthy with standard deviation at 3.36 that is better than peers having similar profile. Sharpe ratio at 1.76 depicts that the fund has healthy risk-adjusted performance and returns are not at the cost of additional risk.
Overall, we believe the fund is good bet for investors having moderate risk profile and investors who are seeking long-term capital appreciation coupled with regular income for cash management purpose.
If you are looking for regular income, then you may opt for the dividend plans of these monthly income plan (MIP) / monthly income schemes. However, do note that in periods of negative earnings, the fund might not declare any dividend. Despite that, these plans are a good option due to their debt equity mix.
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