Monthly income plans' NAVs near par levels

Investors in three open-end monthly income plans could be in for a disappointment this month as net asset values cling on to just above par levels. While Templeton Monthly Income Plan has already skipped dividend payout for July, the picture is no better for Alliance and Sun F&C monthly income plans.

With the current bout of volatility in both equity and debt markets sharply eroding the NAVs of these funds, dividend payout has come under a cloud. Besides, a number of other asset management companies (AMCs) are also going slow on launching similar funds.

Monthly income plans invest around 85 per cent of their assets in debt instruments while the rest is invested in equities. Though open-end monthly income plans do not assure returns, the absence of monthly payout would have nonetheless surely annoyed investors. However, it must be remembered that returns in open-end monthly income plans are a function of the performance of debt and equity markets.

Thus, if the market nosedives, even a good fund manager will find it extremely difficult to book profits and declare a payout. On the other hand, if the going is good, investors can expect a higher payout as declared by Alliance MIP in March this year when it paid a special dividend of 10 per cent. Clearly, the returns from open-end MIPs are far more realistic than the assured returns from their close-end counterparts.

Sun F&C MIP, which declared a maiden dividend of 0.9 per cent on July 4, is yet to make a payout for the current month. While AMC officials are hopeful of declaring a dividend by the end of the month, the NAV of the fund was well below par at Rs 9.74 on August 18. The fund managers now need a sharp spurt in equity prices for the NAV to go above par and book profits for declaring a payout.

It's a similar story for Alliance and Templeton monthly income plans. A highly successful fund since its launch in June last year, Alliance MIP declared a 9 paise payout on August 1. While the AMC has not skipped a monthly dividend so far, it is doubtful whether the AMC will be able to pay a dividend for September.

"We normally declare a payout in the monthly option at the beginning of every month. However, given the current level of NAV, it is difficult to say whether a dividend is coming in early part of September," says an official with the AMC. The NAV of the fund was precariously perched above par at Rs 10.08 on August 18.

For Templeton MIP, it is again going to be a difficult month after it skipped dividend in July this year. Since March 2000, the fund has paid a cumulative dividend of 3 per cent, spread over four months. Templeton MIP also declares a payout towards the end of every month and hence, a dividend for August is due shortly. However, the fund's NAV is not healthy either at Rs 10.07 on August 18.

The volatility and the AMC's inability to declare dividend is also impacting the launch of new monthly income plans. While Reliance Mutual Fund launched its monthly income plan a few days ago, other AMCs like Kothari Pioneer and Prudential ICICI have kept the launches of their MIPs on hold. ''The sentiment is bad and we do want to wait and watch,'' says an official with Prudential ICICI AMC.

The current month could be a saga of missed dividends but then, returns from open-end MIPs are a function of the markets and not arbitrarily arrived at, as in the case of closed-end monthly income plans.

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