For investors who have low or moderate risk appetite and at the same time requires a familiar investment product with options for regular returns, Monthly Income Plans (MIPs) are worth taking a close look, especially in the current situation where interest rates are ruling relatively high.

MIPs are hybrid-balanced funds which provide stability through fixed income investments and growth in the form of equity capital. The major portion of the investment is towards debt funds. These funds also invest in equity instruments so as to give a push to the net asset value, while maintaining the safety and stability from the debt element. As the name suggests, these plans aim at providing regular returns in form of dividend or capital appreciation. MIPs can be differentiated on the basis of equity component in the fund such as conservative (0 -10%), moderate (0 -20%) and aggressive MIP (0 - 30%).

DSP Merrill Lynch Savings Plus Fund – Aggressive, launched in February 2004, is one such fund which invests in debt and equity. The scheme has the objective of generating attractive return through a portfolio with a target allocation of 70% to 100% in debt and money market securities and 0 to 30% in equity. It follows a bottom-up approach to investing, where the stated focus is on long term fundamentally driven value investing. It invests in debt fund, money market instruments, and government securities and at the same time to allocates some portion in equity so as to give a fillip to returns.

Since inception and for the time horizons of two years and one year, the fund has performed rather well giving an average return of 12.28%, 12.18% and 9.54% respectively compared with the 7.87% , 8.70% and 5.95% returns from its benchmark index, the CRISIL MIP Blended Index. In terms of performance comparison, over a period of one year, it is ranked at the top of its peer group. The fund has reported a jump in assets under management that has climbed to Rs 670 million as at February 2007, which is 50% more than the previous year’s level of Rs 411 million.



Though this fund has the mandate to be aggressive in its equity investments, the fund manager has cut the equity exposure to a low of 6.44% as at February 2007. There are currently only six stocks in the portfolio compared to 17 stocks in the previous month which accounted for 21% of the corpus. Over the past one year too, the fund’s investments in equities have averaged around 20% of the overall corpus. When asked about this, Dhawal Dalal the fund manager said that volatility in the market and prevailing valuation levels have prompted him to pare the exposure to equities.

Coming to the debt portfolio, the fund has been fairly consistent in its choice of paper which mainly consists of AAA bonds. Almost all the investments in the long dated securities are in floating rate bonds that mitigate the interest rate risk. Lately, the proportion of money market instruments has also gone up to about 43.63% compared with 28.36% in the previous month and 36.55% a year ago.

Dalal said that the higher allocation towards money market instruments is on account of the prevailing higher returns. He went on to add that the asset allocation strategy is to remain invested in the debt funds while putting money in short term funds to realize better returns.

On the whole, MIPs are for a risk averse investor who is looking at regular income flows. This fund looks reasonably protected from interest rate risk and at the same time could capitalize on the higher rates prevailing in the market. There is also the possible boost to returns from equity investments in addition to the obvious advantage of liquidity, when one compares with bank fixed deposits which are now offering a notch above 9%.