Monthly Returns.

(From Business Today (India))

Byline: Shilpa Nayak

The point of the monthly Income Plan (MIP), a specific kind of mutual fund, is clear: to deliver a salary-like flow of funds to the investor. It is a 15-year-old idea pioneered by the Unit Trust of India (UTI). And it has, since inception, been an option for the safety-seeking investor. To be able to send regular cheques, debt and other fixed-income instruments were the preferred target of investment, with equity used only to add some profit bounce. Over the last two years, several private fund houses have hit the market with similar MIPs, aimed at retired people and others in need of recurrent returns, though with a 'secondary objective' of "long-term capital appreciation by investing a small portion in equity/equity related instruments". Under regulation, 20 per cent of the monies collected for MIPs can be invested in equity.

As expected, MIPs were sold on the plank of prudence, though with the added promise of better returns than pure debt funds. The houses knew that their equity plays would distinguish the performance of one fund over another. And so it was. It worked well so long as the equity markets were buoyant. But the market turmoil since April has caught most MIPs in a severe bind-with some of them failing to meet their monthly commitments.

Things are so bad that the very category has undergone a shift in its 'risk' image. An MIP is no longer seen as a bankable option. "One can recommend investing in MIPs only after doing a detailed analysis of age ...