Monthly income plans (MIP) of mutual funds seem to have captured the fancy of ‘riskaverse' investors. Faced with the prospects of shrinking returns from debt schemes, many investors are turning to their financial advisors for help and the advice they mostly get is the same: ‘‘ Invest in MIPs, which have a small exposure (mostly 15-25 %) to equity. The equity component will act as a ‘kicker' and give you extra returns.''
However, as critics point out, what most advisors don't tell investors is that they would be cut short once bears tighten their grip over the stock market.
‘‘ Many experts recommend MIPs because these are the right product at this juncture. Fixed income products are anyway not delivering great returns and they are expected to fall further,'' says Hiren Dhakan, associate fund manager, Bonanza Portfolio . ‘‘ MIPs will be useful because of their portfolio mix of equity and debt. If you can earn extra returns from equity, it would offset low returns from debt,'' he adds.
And financial experts have good reason to believe that debt returns may fall further. The likely large government borrowing in the next financial year may drive yields up, pushing down debt returns . Many investors are already rethinking their debt investment as these schemes give only 5.0-5 .5% return, say investment advisors.
However, critics point out that the whole premise on which the MIPs are sold could prove wrong. ‘‘ The products are sold on the assumption that equity would give extra returns, but that need not be the case always,'' says an investment consultant, who doesn't want to be named. ‘‘ Safety, higher returns , tax-efficiency , active management of debt equity allocation and liquidity of investment, liquidity ... MIPs are supposed to be the one solution to all these needs. Clearly, there is some mis-selling going on,'' he adds.
Dhakan says the MIP recommendation is based on two reasons : one, there is a consensus that the prospects of debt investment remains rather bleak for the time being. Two, there are no negative factors as far as equity investment is concerned.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Monthly-income-plans-catch-investors-fancy-/articleshow/5546979.cms
However, as critics point out, what most advisors don't tell investors is that they would be cut short once bears tighten their grip over the stock market.
‘‘ Many experts recommend MIPs because these are the right product at this juncture. Fixed income products are anyway not delivering great returns and they are expected to fall further,'' says Hiren Dhakan, associate fund manager, Bonanza Portfolio . ‘‘ MIPs will be useful because of their portfolio mix of equity and debt. If you can earn extra returns from equity, it would offset low returns from debt,'' he adds.
And financial experts have good reason to believe that debt returns may fall further. The likely large government borrowing in the next financial year may drive yields up, pushing down debt returns . Many investors are already rethinking their debt investment as these schemes give only 5.0-5 .5% return, say investment advisors.
However, critics point out that the whole premise on which the MIPs are sold could prove wrong. ‘‘ The products are sold on the assumption that equity would give extra returns, but that need not be the case always,'' says an investment consultant, who doesn't want to be named. ‘‘ Safety, higher returns , tax-efficiency , active management of debt equity allocation and liquidity of investment, liquidity ... MIPs are supposed to be the one solution to all these needs. Clearly, there is some mis-selling going on,'' he adds.
Dhakan says the MIP recommendation is based on two reasons : one, there is a consensus that the prospects of debt investment remains rather bleak for the time being. Two, there are no negative factors as far as equity investment is concerned.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Monthly-income-plans-catch-investors-fancy-/articleshow/5546979.cms
Posts
No comments:
Post a Comment