An aggressive debt player
If you can stomach risks that are somewhat higher than holding pure debt funds then Reliance Monthly Income Plan (MIP) is a good option. With a return of 11 per cent annually in the last five years as well as since its launch in December 2003, this debt-oriented fund is amongst the top performers in the monthly income scheme category. This return is also a good five percentage points over its benchmark Crisil MIP Blended index.
With higher average portfolio maturity compared with quite a few peers, the fund’s debt portfolio may deliver over the next few months if interest rate cuts do happen.
Suitability
If you have no penchant for risk then Reliance MIP will not suit you. For one, it is a debt-oriented fund, but can invest 20-25 per cent in equities as well. That means in times of steep equity declines, the fund can slip in to negative returns. Two, even among the category of debt-oriented funds, Reliance MIP can be risky as it tends to take aggressive debt calls in anticipation of interest rate movements. Still, thus far, it has compensated investors with returns for the risk assumed.
If you wish to diversify your equity laden portfolio with some debt, this fund is a good choice. Reliance MIP also has a good record of declaring steady and high quantum of dividends for those you opt for pay out. While the fund is not required to declare dividend regularly (although it seeks to), you can certainly expect it to provide you with some additional income stream, if you are looking for one.
Performance
Reliance MIP tops the five-year chart of debt-oriented funds and is in the top three over a longer period of 7 years. The fund’s three-year rolling return, since its inception is an average 11.7 per cent compounded annually. That means, irrespective of when you invested, your average three-year returns would have been around this figure. HDFC MIP Long Term comes close to this number on a rolling return basis. But it is to be noted that HDFC MIP Long Term, often times, goes over 20 per cent on equities. For instance, as of November HDFC MIP had a 25 per cent exposure to equities as against Reliance MIP’s 19 per cent.
Among the universe of MIP funds, Reliance MIP also scores well on a risk-adjusted basis too, measured by the sharpe ratio. Over a three year period, Reliance MIP would have delivered an IRR of 10 per cent annually had you invested through SIP. Lump sum returns over this period was 8.4 per cent.
That said, Reliance MIP has had a taste of bitter pill too. It did not have a great period between late 2007 and the first half of 2008, Besides being hurt by the equity downfall in early 2008, the fund had also anticipated an interest rate decline a little too early. As a result it suffered negative returns in the first quarter of 2008 and remained lack luster up to mid-2008.
But to its credit, it made up by gaining 14 per cent in the December 2008 quarter, when interest rate cuts began. The above is an illustration of the risky call the fund took, albeit delivering in the end.
Portfolio
Reliance MIP currently sports a portfolio with average maturity of 7.49 years. That’s far higher than the maturity profiles of HDFC MIP Long Term Plan or Canara Robeco MIP. But if interest rate cuts act in its favour, then the fund can deliver more. The fund has a fifth of its assets in government securities and about 38 per cent in corporate bonds.
While a good proportion of corporate bonds have top rating, the fund has less than AAA-rated securities from Reliance Infrastructure and Hindalco Industries. As the interest accrual on these slightly riskier bonds could be higher, the fund may well adopt a hold on them to mitigate risks. Equities account for a fifth of portfolio value. SML Isuzu, Mahindra Forgings and Torrent Power are some of the interesting stock picks.
The fund is managed by Amit Tripathi and Sanjay Parekh. An exit load of 1 per cent will be charged by the fund for redemptions made within a year of allotment.
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under this scheme i want to know whether i can opt for dividend payout or swp route? to get regular payout
Hi, If you are looking to this as a main source of regular income, then SWP would be a better option. If you merely wish to use this as a supplement and do not mind marginal variation in the quantum of dividend declared every month then dividend pay out is fine. Also, if you are in the highest tax bracket then dividend pay out is more tax efficient in this case.
hi vidya… it feels good that i have already invested in this fund two yrs ago but in the growth option & lumpsum 50K. i want to know which is better in terms of maximum per annum returns & risk (growth or dividend option)? also, i invested lumpsum was that right or SIP would have been better? luckily i didn’t made any losses. 3rd & final question.. how much long should the SIPs be spread out ideally for 50K investment 1/2 yrs? i am afraid to invest lumpsum now as market is already at 19K levels but on the other hand considering the bullish outlook & above 6.5% growth forecast am afraid that my future SIP installments will buy units at a higher cost.
1. Your question on growth or dividend option – Much would depend on your goal and risk appetite. Growth in superior in terms of returns as you are allowing the money to stay invested and grow. Yes, it is riskier because you are not taking off profits. But if you are holding for the long term, the risk is mitigated.
2. Your question on investing as lump sum – Investing lump sums in debt may be slightly less riskier than investing lump sums in equity. Having said that, in long-dated funds such as gilt funds it can be risky unless you invest, knowing fully well the point of interest rate cycle in which you are investing.
3. How long to spread out the SIPs – This is something you have to decide based on your SIP asset allocation of your portfolio as a whole. If you have a 70:30 equity debt allocation. You need to invest a sum that will ensure your debt proportion stays at 30%. Also, if youa re linking thsi amount to a medium-term goal, then you may choose your time frame accordingly. This would be the preferred method. Otherwise Rs 50,000 can be invested in about 2 years.
4. Lump sums – Yes, investing in equities at 19k through lump sums many not be ideal. That said, you should not worry about buying addl. units at higher costs if markets go up. Remember, SIPs that too in equities, should be used for at least 3 years to help average cost. Over such a period, there is likely to be enough opportunities to average.
But if you are talking about a debt-oriented fund like Reliance MIP, you can consider lump sum if you have a time frame of not less than 3 years and you need to systematically withdraw money or need dividends.If you do not have the above requirements and are simply using it to build wealth, then go for SIP. – Vidya
I am new to Fund India. Please suggest how to start SIP investment.
Which SIP is best ?
I have tried to invest but it is showing that my Bank(HDFC) does not have ECS system. Please guide which mode of money transfer is to be used for investing through Fund India.
Regards
Peeyush Vaish
Peeyush, it is possible that your bank does not have the ifsc code needed for money trfrs or it is not in to ECS (certain remote branches of some banks are not ecs enabled). If this were the case, then you may not be able to proceed. Kindly contact our customer care support to discuss this.
HDFC Bank surely has an ECS option. While registering at Fundsindia u must have got that ECS form which u need to get signed by the bank manager. Alternatively reprint the form. Go through the help section it has all the info or call Fundsindia’s helpline nos. Also u may invest at one go in Liquid mutual funds and opt for a switch from that.
Yes, Sujata, HDFC Bank has ECS Option. It has come to our notice that branches in certain remote locations do not have the option as yet. While we do get a list of fresh IFSC codes added every month, it is possible that the said bank is not yet added. Peeyush may kindly contact our customer support.
Dear Vidya, I am looking for a fund where in my Father can invest some ammount in lump sum and he gets returns every month, keeping the corpus intact. Should he go for Dividand Pay Out? He is retired, so we do not want to go for risky investment. He had been investing in Post Office MIP but their returns are just 8.1% and the Senior Citizen Saving Scheme is giving 9.2% and that too paid quarterly. Further I am wondering as to why is this fund called MIP? Your help will be greatly appritiated. Thank you.
Hello Rahul,
Your father should explore more of Post Office Senior Citizen’s scheme and FDs and then take small exposure to debt mutual funds to begin with. MIPs are debt-oriented funds with 20-25% invested in equities. They are called Monthly Income Plans because they seek to distribute dividends every month. But note that dividend is not guaranteed nor is it fixed. It is discretionary based on the surplus. But most MIPs do manage regular dividend payouts. The biggest draw back for your father is that dividends will not be guaranteed the way interest is in deposits of PO or banks.
Also, the equity component will have some risks.
If he wishes to go for this option – he can either choose dividend payout or opt for growth and then do a Systematic withdrawal plan. But for the second option he should stay invested for at least 1-2 years to allow the money to grow and then start withdrawal. SWP allows a fixed sum to be withdrawn every month. Here the cash flow for your father will be fixed unlike dividend payout (which is at the fund discretion). But SWPs (greater than 1 year) will have long-term capital gain if any.
My suggestion would be to go for short-term debt funds (check our select funds in debt category with 1-1.5 years time frame: http://www.fundsindia.com/select-funds). to avoid exposure to equities, if he is risk averse.
thanks
Vidya
Hi Vidya,
Today I came across the article in ET (http://articles.economictimes.indiatimes.com/2013-10-22/news/43288744_1_mips-debt-fund-rupesh-bhansali) . Even I had heard good reviews about Reliance MIP & was planning to invest in it near future. So wanted to know your expert opinion on the article where it is mentioning MIP as a concept has not succeeded based on the past 2-3 years result 🙁
hello Rahaman, Sorry for the delayed reply. You should not worry too much about the article. Having said that MIPs are fit for 2 categories of investors: one, who are just making their entry into equity markets and need a stepping stone and two, those looking for some source of income flow from funds. If you satisfy this criteria, then MIPs are a good option. Yes, the equity component in MIPs did pull down overall returns in the last couple of years. This will reverse in a equity rally. If you are conservative, best to stick to debt funds and take exposure to equity later, when you are comfortable, with large-cap funds. thanks.
Hi Vidya,
Today I came across the article in ET (http://articles.economictimes.indiatimes.com/2013-10-22/news/43288744_1_mips-debt-fund-rupesh-bhansali) . Even I had heard good reviews about Reliance MIP & was planning to invest in it near future. So wanted to know your expert opinion on the article where it is mentioning MIP as a concept has not succeeded based on the past 2-3 years result 🙁
hello Rahaman, Sorry for the delayed reply. You should not worry too much about the article. Having said that MIPs are fit for 2 categories of investors: one, who are just making their entry into equity markets and need a stepping stone and two, those looking for some source of income flow from funds. If you satisfy this criteria, then MIPs are a good option. Yes, the equity component in MIPs did pull down overall returns in the last couple of years. This will reverse in a equity rally. If you are conservative, best to stick to debt funds and take exposure to equity later, when you are comfortable, with large-cap funds. thanks.
I am new to Fund India. Please suggest how to start SIP investment.
Which SIP is best ?
I have tried to invest but it is showing that my Bank(HDFC) does not have ECS system. Please guide which mode of money transfer is to be used for investing through Fund India.
Regards
Peeyush Vaish
Peeyush, it is possible that your bank does not have the ifsc code needed for money trfrs or it is not in to ECS (certain remote branches of some banks are not ecs enabled). If this were the case, then you may not be able to proceed. Kindly contact our customer care support to discuss this.
HDFC Bank surely has an ECS option. While registering at Fundsindia u must have got that ECS form which u need to get signed by the bank manager. Alternatively reprint the form. Go through the help section it has all the info or call Fundsindia’s helpline nos. Also u may invest at one go in Liquid mutual funds and opt for a switch from that.
Yes, Sujata, HDFC Bank has ECS Option. It has come to our notice that branches in certain remote locations do not have the option as yet. While we do get a list of fresh IFSC codes added every month, it is possible that the said bank is not yet added. Peeyush may kindly contact our customer support.
Dear Vidya, I am looking for a fund where in my Father can invest some ammount in lump sum and he gets returns every month, keeping the corpus intact. Should he go for Dividand Pay Out? He is retired, so we do not want to go for risky investment. He had been investing in Post Office MIP but their returns are just 8.1% and the Senior Citizen Saving Scheme is giving 9.2% and that too paid quarterly. Further I am wondering as to why is this fund called MIP? Your help will be greatly appritiated. Thank you.
Hello Rahul,
Your father should explore more of Post Office Senior Citizen’s scheme and FDs and then take small exposure to debt mutual funds to begin with. MIPs are debt-oriented funds with 20-25% invested in equities. They are called Monthly Income Plans because they seek to distribute dividends every month. But note that dividend is not guaranteed nor is it fixed. It is discretionary based on the surplus. But most MIPs do manage regular dividend payouts. The biggest draw back for your father is that dividends will not be guaranteed the way interest is in deposits of PO or banks.
Also, the equity component will have some risks.
If he wishes to go for this option – he can either choose dividend payout or opt for growth and then do a Systematic withdrawal plan. But for the second option he should stay invested for at least 1-2 years to allow the money to grow and then start withdrawal. SWP allows a fixed sum to be withdrawn every month. Here the cash flow for your father will be fixed unlike dividend payout (which is at the fund discretion). But SWPs (greater than 1 year) will have long-term capital gain if any.
My suggestion would be to go for short-term debt funds (check our select funds in debt category with 1-1.5 years time frame: http://www.fundsindia.com/select-funds). to avoid exposure to equities, if he is risk averse.
thanks
Vidya
under this scheme i want to know whether i can opt for dividend payout or swp route? to get regular payout
Hi, If you are looking to this as a main source of regular income, then SWP would be a better option. If you merely wish to use this as a supplement and do not mind marginal variation in the quantum of dividend declared every month then dividend pay out is fine. Also, if you are in the highest tax bracket then dividend pay out is more tax efficient in this case.
hi vidya… it feels good that i have already invested in this fund two yrs ago but in the growth option & lumpsum 50K. i want to know which is better in terms of maximum per annum returns & risk (growth or dividend option)? also, i invested lumpsum was that right or SIP would have been better? luckily i didn’t made any losses. 3rd & final question.. how much long should the SIPs be spread out ideally for 50K investment 1/2 yrs? i am afraid to invest lumpsum now as market is already at 19K levels but on the other hand considering the bullish outlook & above 6.5% growth forecast am afraid that my future SIP installments will buy units at a higher cost.
1. Your question on growth or dividend option – Much would depend on your goal and risk appetite. Growth in superior in terms of returns as you are allowing the money to stay invested and grow. Yes, it is riskier because you are not taking off profits. But if you are holding for the long term, the risk is mitigated.
2. Your question on investing as lump sum – Investing lump sums in debt may be slightly less riskier than investing lump sums in equity. Having said that, in long-dated funds such as gilt funds it can be risky unless you invest, knowing fully well the point of interest rate cycle in which you are investing.
3. How long to spread out the SIPs – This is something you have to decide based on your SIP asset allocation of your portfolio as a whole. If you have a 70:30 equity debt allocation. You need to invest a sum that will ensure your debt proportion stays at 30%. Also, if youa re linking thsi amount to a medium-term goal, then you may choose your time frame accordingly. This would be the preferred method. Otherwise Rs 50,000 can be invested in about 2 years.
4. Lump sums – Yes, investing in equities at 19k through lump sums many not be ideal. That said, you should not worry about buying addl. units at higher costs if markets go up. Remember, SIPs that too in equities, should be used for at least 3 years to help average cost. Over such a period, there is likely to be enough opportunities to average.
But if you are talking about a debt-oriented fund like Reliance MIP, you can consider lump sum if you have a time frame of not less than 3 years and you need to systematically withdraw money or need dividends.If you do not have the above requirements and are simply using it to build wealth, then go for SIP. – Vidya