MIP performance — Lacklustre year

In line with the performance of pure debt funds, Monthly Income Plans (MIP) have had a lacklustre year compared with their historical performance.

MIPs on an average managed to deliver 7 per cent returns over the last one year period, partly aided by a decent rally in the equity market. MIPs typically have a maximum allocation of anywhere between 10 per cent and 25 per cent of their total investment in equity markets.

Only 45 per cent of the 38 MIPs (with a one-year track record) under growth option, outperformed the Crisil MIP blended index over the last one year.

The waning performance of MIPs over the last six months was due to the falling prices of corporate debentures and gilts (marked by rising yields). Surplus liquidity condition up to April 2010 meant that the short-term rates were also not attractive.

Thanks to the flattening of the yield curves, some funds have made decent returns by holding on to the short-term maturities post-April.

Top performers

HDFC MIP-Long-term plan, Reliance MIP and HSBC MIP are among the top performing funds over the last one year period.

These funds were consistently among the top five MIPs over the last three and five-year periods. Good performance of HDFC MIP and HSBC MIP can be attributed partly to the higher exposure to equity (over 20 per cent). Funds such as ICICI Pru MIP 25 and UTI MIS advantage plans have also outperformed the Crisil MIP index by virtue of having high equity exposures.

However, others such as Reliance MIP, Tata MIP Plus and LIC MIP delivered good returns, despite having relatively lower exposure to equity; thanks to the constant churning of their respective portfolios.

Reliance MIP, for instance, has not significantly reduced the average maturity of its portfolio, despite the rates trending up over the last six months. Earlier, funds cut their average maturity period in anticipation of rising rates.

Bharti AXA Regular Return Fund, Tata MIP, ING MIP, DSP BR Savings Manager and Fortis MIP were among the under-performers.

While there is no secular trend for the under-performance, some schemes were not invested and were sitting on cash while other funds held on to the corporate debt whose value fell over the one-year period.

With equity markets trading at a 30-month high and further monetary tightening expected investors may be better-off sticking to funds with a good track record, sizeable corpus and limited exposure to the equity markets.

Source: http://www.thehindubusinessline.com/iw/2010/08/29/stories/2010082950200800.htm