Top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS) in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Mutual Fund MIPs have the following advantages compared to Post Office MIS
However, mutual fund MIPs are not as popular as Post Office MIS due to the following drawbacks:-
These drawbacks can be somewhat addressed by the mutual fund industry by expanding its distribution reach and through sustained investor awareness and education programmes. If investors are willing to take small amounts of risks and sacrifice guaranteed monthly income then mutual fund MIPs can provide greater returns in comparison to post office MIS. In this article, we will review the top 5 Monthly Income Plans, based on the most recent CRISIL ranking (March 2014).
CRISIL ranks equity funds based on several parameters like average 3 year annualized returns, volatility, portfolio concentration risk (both industry and company), debt asset quality and portfolio liquidity (both debt and equity) risk. On each of these parameters, each scheme is accorded a cluster rank (from 1 to 5) relative to its peer group. To derive a composite cluster rank, CRISIL has assigned different weights to each parameter, with average 3 year annualized return given the highest weights at 50%, volatility 30%, industry concentration risk 10%, company concentration risk 5% and liquidity risk 5%. The period of analysis is broken into four periods, latest 36, 27, 18 and 9 months. Each period is assigned a progressive weight starting from the longest period as follows: 32.5%, 27.5%, 22.5% and 17.5% respectively.
The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 29% equity, 67% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.
The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 56% debt, 14% money market and 5% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.
The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 67% debt, and 8% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.
The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 69% debt, 3% money market and 3% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.
The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.
Conclusion
Top performing monthly income plans from reputed fund houses, have provided good monthly income especially compared to post office MIS. Investors who are willing to take a bit of risk, can opt for mutual fund MIPs for getting higher returns associated with the equity portion of the portfolio mix and the greater tax efficiency associated with MIPs for investors in the highest tax bracket. Investors should consult with their financial advisers, if mutual fund MIPs are suitable for their income needs.
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