The markets celebrated the festive season and did it with a lot of style. The BSE Sensex rose by 2.85 per cent to close at 5,699 points while the S&P CNX Nifty closed at 1,837 points (up by 3.26 per cent). The markets were not short on excitement in spite of it being a truncated week.
Last week we profiled balanced funds and discussed their relevance, this time let's consider another instrument from the hybrid category.
MIPs (Monthly Income Plans) are a diluted version of balanced funds. While conventional balanced funds have a 60-40 allocation in favour of equity, in MIPs the ratio is 15/25-75 in favour of debt.
MIPs are best suited for investors who are risk-averse and would like to have a tiny component of equity in their holdings purely to boost their returns.
Considering that debt markets' attractiveness has come down drastically in recent times, the need to have an equity component in your portfolio has never been greater.
Even at present levels (equity markets nudging 5,700 points) investing in MIPs is a smarter option as the exposure to equity is restricted to 15-25 per cent of the entire holding. Markets players seem to have realised the importance of MIPs from the retail investors' perspective as well, resulting in a large number of MIPs being launched in recent times.
Leading Monthly Income Plans
| MIP Schemes | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| MAGNUM MIP G | 13.49 | 1.56% | 3.70% | 11.09% | 14.22% | NA | 11.52% | 0.74% | 0.45% |
| BIRLA MIP C G | 15.35 | 1.04% | 3.33% | 10.64% | 16.23% | 14.97% | 14.82% | 0.95% | 0.67% |
| ALLIANCE MIP G | 19.69 | 1.01% | 4.12% | 12.10% | 20.23% | 15.20% | 16.13% | 1.20% | 0.61% |
| PRINCIPAL MIP G | 12.55 | 0.78% | 2.06% | 8.34% | 13.50% | NA | 15.27% | 0.90% | 0.67% |
| PRUICICI MIP C | 14.50 | 0.66% | 2.20% | 9.41% | 14.55% | 12.31% | 12.28% | 0.66% | 0.64% |
(Standard deviation indicates by how much the values have deviated from the mean of the values. It measures by how much the investor has diverged from the mean return either upwards or downwards. It highlights the element of risk associated with the fund.)
If you are an investor with an appetite for some risk but with assets pre-dominantly in income schemes, it makes sense to shift a part of your holdings to MIPs to enhance your returns.
On the other hand, for an investor who is heavily invested into equity schemes, monthly income plans are all the more important.
The overheated markets make a perfect case for booking profits and shifting to MIPs, as the debt component will provide some much-needed solidity to the portfolio.
Leading Income funds
| Income Schemes | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| JM INCOME G | 26.41 | 0.50% | 1.31% | 4.99% | 9.47% | 14.88% | 12.14% | 1.02% | 0.44% |
| GRINDLAYS DYN. BOND | 11.94 | 0.50% | 0.94% | 4.62% | 10.53% | NA | 12.54% | 1.04% | 0.40% |
| FIRST INDIA INC G | 11.64 | 0.46% | 1.16% | 5.26% | 8.12% | NA | 8.78% | 1.17% | 0.12% |
| K BOND DEP G | 16.66 | 0.43% | 1.09% | 4.56% | 9.00% | 14.08% | 13.14% | 1.01% | 0.39% |
| HDFC INCOME G | 15.62 | 0.42% | 1.13% | 4.58% | 9.90% | 14.31% | 14.18% | 0.95% | 0.47% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
The debt markets were on route to gradual recovery this week too.
The bench mark 10 year 7.27 per cent GOI yield closed at 5.11 per cent (December 26, 2003), 4 basis points below the previous close. Markets were flush with liquidity leading to aggressive buying in government bonds.
The top slot was shared by JM Income (0.50 per cent) and Grindlays Dynamic Bond (0.50 per cent). First India Income (0.46 per cent) came in a close second.
Leading Diversified Equity Funds
| Diversified Equity Schemes | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | 3-Yr | Incep. | SD | SR |
| DEUTSCHE ALPHA G | 20.54 | 8.28% | 20.75% | 86.90% | NA | NA | 39.61% | 6.52% | 0.91% |
| PRUICICI GROWTH G | 38.05 | 5.29% | 17.91% | 70.55% | 93.25% | 24.90% | 27.15% | 7.26% | 0.38% |
| BOINANZA EXCL G | 16.88 | 5.24% | 19.21% | 69.71% | 109.59% | 45.53% | 12.48% | 7.10% | 0.59% |
| BIRLA DIV YIELD G | 22.34 | 5.23% | 20.63% | 80.89% | NA | NA | 120.97% | 7.10% | 1.09% |
| RELIANCE GROWTH GR | 78.12 | 4.82% | 21.61% | 102.28% | 157.14% | 49.61% | 28.49% | 7.37% | 0.74% |
Equity funds had yet another good week triggered by the rally in equity markets. With markets touching new highs every week, equity fund investors have rarely had it so good.
Deutsche Alpha (8.28 per cent) delivered a superlative weekly performance, heads and shoulders above other players. PruICICI Growth (5.29 per cent) and BOINANZA Excl. (5.24 per cent) came in distant second and third positions, respectively.
While 2003 was a 'bumper' year for equity fund investors, what investors would be keen on knowing is what lies in store for them in 2004.
Equity fund managers unanimously agree that the rally has already factored in quite a bit of the positives already, which is not to say that there is no more steam left.
When we asked Prashant Jain, head-equities, HDFC Mutual Fund for his views on market valuations and investment opportunities going forward, he elaborated, "There is reasonable upside due to the continued growth in the economy, exports and in corporate profits. Further, the PE multiples are low compare to the long term average PE multiples of India, compared to the growth rates in corporate profits, in relation to bond yields and also verses PE multiples in many other markets across the world."
If you are an investor with a reasonable investment horizon (3-5 years) and a risk appetite, a well-diversified equity fund still holds growth potential.
To put it modestly, 2003 was a stupendous year for investors.
Even the most optimistic investors couldn't have guessed what lay in store for them. With markets touching unprecedented highs, investors should exercise discretion going forward.
It is time to start making well-researched and informed decisions based on professional advice. This should be the strategy for 2004.
