Where to invest for a regular income

Monthly Income Plans are mutual funds that seek to give regular dividends to investors.

Though returns are not guaranteed, they are an ideal choice for investors with a moderate risk appetite seeking some form of income.

Investors who do not want to invest in diversified equity funds or even balanced funds (funds that invest in both equity and debt) can consider making investments in MIPs.

These funds invest more in debt (fixed return investments) than in equity. Hence they are safer than equity funds and balanced funds. Moreoever, the average one year return of 9.52% is higher than what you will get on a conventional fixed deposit.

Here are the best MIPs.

Birla MIP

Birla MIP looks a bit unexciting right now, but its conservative approach, ability to generate returns during the good as well as the bad times and low volatility should appeal to cautious investors.

Of course, its recent performance – which is lower than that of its average peers – looks discouraging but investors should keep in mind that Birla MIP is more of a wealth protector and not an aggressive wealth creator.

Unlike Birla MIP, most other MIPs who have outperformed the average have a mandate to invest more in equities and have generated returns by cashing in on this bull run. This has resulted in higher returns and higher volatility.

Birla MIP started off as an ultra-conservative fund in November 2000. Though it had a mandate to invest up to 15% of its corpus in equities, it hardly crossed an average 5% in the first two years, and rightly so as equity markets were in trouble. Then, returns from debt were enough to make it one of the best MIPs.

The fund's portfolio underwent a makeover in 2003. The tide turned in favour of the stock market and the fund increased its exposure to equity. It hit a rough patch in 2004 as a result of rising interest rates.

Cautious investors should like its low volatility and decent returns.

DSPML Savings Plus Moderate

After a splendid start, this fund's endurance is being tested. It has underperformed in the last three successive quarters. However, a quality portfolio, low volatility and continuity of fund managers should comfort investors.

The fund stressed on safety and had a mandate of up to 20% of total investments in equity. However, this is restricted to the top 100 companies by market capitalisation. As a result, this fund is less risky and less volatile than some of its peers.

This has also resulted in lower performance since its peers have gained by investing in mid- and small-cap stocks.

This fund is great for those who prefer stability against flashy returns. Conservative investors should like this fund.

The only concern here is the expense ratio which has gone up in the last one year.

Franklin Templeton India MIP

While no MIP can or should be aggressive, this one takes aggression as far as it can reasonably be taken. This has paid off and the fund is the best performing funds in this category.

The fund has a mandate to invest up to 20% of its total portfolio in equity. In the last two years, the fund has allocated an average of 18.65% of total investments to equity. This has resulted in volatility and higher returns.

As a risk control measure, the fund has always maintained a concentration of large-caps. And it has invested in around 25–35 stocks in different sectors.

The fund has also done a good job in keeping expenses under control. The expense ratio, which used to remain 2% till last year, has dropped to 1.89% as on September 30, 2005.

HDFC MIP Long-term

Since launch in December 2003, this fund has had a ballistic start. But even as we say that, we must point out that the value of an MIP having such a beginning in the middle of a bull run is questionable.

It was the hottest MIP last year and is well on its way to repeating its performance this year. However, its high volatility might unnerve conservative investors. Investors with a long-term investment horizon would benefit from this fund's aggressive approach.

The fund's mandate to invest up to 25% of its portfolio in equity has proved to be a blessing to the fund manager. The bull run has given him the mandate to invest in stocks and the fund has almost always kept its equity allocation above 20%. In fact, in the last eight months, it has pushed its exposure to close to 25%. The fund manager has also invested in mid- and small-cap stocks.

While this has generated a great return, it has also resulted in volatility higher than that of its peers. Expenses are high as well and have increased in the last one year to 1.93%.

Prudential ICICI MIP

Even though it looks more aggressive now compared to its cautious past, this fund continues to be one of the best options for conservative investors.

Though the fund has a mandate to invest up to 15% of its portfolio in equity, it started off in October 2000 with an equity-free portfolio.

This resulted in an MIP which lacked any returns firepower but was perfect for the normal MIP investor whose priority was capital preservation.

Soon, this fund's low volatility and reasonable returns made it one of the more popular options in the category. It continues to enjoy that reputation till date.

In mid 2003, it increased exposure to equity. Since the start of 2005, it has invested nearly 14% of its assets in equity and this has included investments in mid- and small-cap stocks.

Though these changes have increased the volatility of the fund, its still remains one of the lowest in the category.

The fund has tried to minimise risk by keeping cash and diversifying by investing in a number of stocks. But, will it live up to its reputation of a capital preserver with this approach? Nonetheless, it is one of the better options in the MIP category.