Investors with monthly income plans have something to cheer. Before the rain starts pouring in, it is time for the mutual funds. Monthly income plans, that manage money with an objective to generate regular income flows for investors, have come out with a spate of dividend announcements.
Since May 1, 2009, thirty eight MIP schemes have declared dividends till date. Dividends are paid out of profits generated by the schemes and not a guaranteed phenomenon. The schemes invest in a judicious combination of equity and debt instruments to generate healthy risk-adjusted returns. The ratio of debt and equity in the portfolio is administered by scheme objective and the fund manager’s views.
Given the rally in equity markets, the net assets value (NAV) of most MIPs soared. Especially those aggressive schemes with high equity allocation of 25% posted a good show for the investors. According to Valueresearchonline.com, MIP funds on an average have delivered 3.65% and 10.71% in last one and three months respectively. Over the same period, S&P CNX Nifty has given 25.69% and 76.86%. “The lower returns given by MIPs compared with the market must be seen in light of the low equity weights and in turn the low risk involved,” says a mutual fund analyst with a domestic brokerage.
Despite this, the returns on MIP look good compared to their performance in last one year, which stood at 9%. “Due to concerns over rising fiscal deficit on higher spending by the government financed by increased borrowing, the (bond) yields went up marring the returns on fixed income portfolio of the mutual funds,” explains the analyst.
Going forward, it may be a wise idea to keep a track of the portfolios of these schemes and their performance. As the inflationary pressures creep in, the yields on bonds may further go upward pressurizing the returns generated by the fixed income instruments comprising major chunk of the portfolio of these scheme. Though equities look good as an investment in long term, a sudden correction in short term cannot be ruled out given the stellar rally of more than 75% in last three months. Hence, those keen on regular income need should choose the MIP route with utmost caution.
Since May 1, 2009, thirty eight MIP schemes have declared dividends till date. Dividends are paid out of profits generated by the schemes and not a guaranteed phenomenon. The schemes invest in a judicious combination of equity and debt instruments to generate healthy risk-adjusted returns. The ratio of debt and equity in the portfolio is administered by scheme objective and the fund manager’s views.
Given the rally in equity markets, the net assets value (NAV) of most MIPs soared. Especially those aggressive schemes with high equity allocation of 25% posted a good show for the investors. According to Valueresearchonline.com, MIP funds on an average have delivered 3.65% and 10.71% in last one and three months respectively. Over the same period, S&P CNX Nifty has given 25.69% and 76.86%. “The lower returns given by MIPs compared with the market must be seen in light of the low equity weights and in turn the low risk involved,” says a mutual fund analyst with a domestic brokerage.
Despite this, the returns on MIP look good compared to their performance in last one year, which stood at 9%. “Due to concerns over rising fiscal deficit on higher spending by the government financed by increased borrowing, the (bond) yields went up marring the returns on fixed income portfolio of the mutual funds,” explains the analyst.
Going forward, it may be a wise idea to keep a track of the portfolios of these schemes and their performance. As the inflationary pressures creep in, the yields on bonds may further go upward pressurizing the returns generated by the fixed income instruments comprising major chunk of the portfolio of these scheme. Though equities look good as an investment in long term, a sudden correction in short term cannot be ruled out given the stellar rally of more than 75% in last three months. Hence, those keen on regular income need should choose the MIP route with utmost caution.
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