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After tech funds, AMCs woo investors with MIPs

Aabhas Pandya

After technology funds, fund houses are now showering monthly income plans on investors. At least four asset management companies have lined up monthly income plans, which are shortly expected to hit the market. Apart from the Unit Trust of India, which will unveil its third MIP for the current calendar, Prudential-ICICI, Reliance and Kothari Pioneer asset management companies aim to launch similar products. The four AMCs have already filed their draft prospectus with the Securities and Exchange Board of India. A few other AMCs, including Birla Mutual Fund, are also planning to launch an open-end monthly income plan.

While the MIP from the Unit Trust of India will be a closed-end plan, the monthly income plans from the other three AMCs will be open-ended. That open-end MIPs have caught the fancy of the private sector AMCs is apparent - the first open-end MIP was launched by Alliance Mutual Fund only in June last year. Since then, the family of open-end MIPs has swelled to four, with three more slated to open for subscription.

The monthly income plans invest around 15 per cent of their corpus in equities while the rest goes to debt instruments. With 85 per cent debt exposure, a MIP largely remains a safe investment avenue, while the 15 per cent equity component gives a boost to returns.

''There is a tremendous appetite for a monthly income plan with investors, who want regular income. Even those investors, who have been putting money in UTI's MIPs want a better product, which gives them higher returns that UTI's MIP coupled with better service standards,'' says an official with a Bombay-based mutual fund.

UTI's MIPs are closed-end funds with tenure of around five years. While these income plans still assure returns, it is now only for the first year against the entire duration of the fund till 1999. Besides, the assured coupon has gradually declined by 150 basis points from 10.75 per cent under the monthly option in MIP '99(I) to 9.25 per cent in MIP '2000 (II). ''Liquidity is also a problem in UTI's MIPs which carry a three-year lock-in. An investor cannot move his investments from an MIP to a balanced or equity fund in case there is a shift in his preference,'' he adds. No wonder, collections under UTI's second MIP for 2000 dropped from around Rs 10 billion in MIP 2000 (I) to Rs 5 billion.

Apart from the potential demand from investors, the impressive return from Alliance Monthly Income Plan is also driving AMCs to launch similar funds. Since its launch in June 1999, the Alliance MIP has posted an absolute return of 27.5 per cent and the fund's assets under management have vaulted by 850 per cent from Rs 730 million during the initial subscription offer to Rs 6.98 billion as on June 30, 2000. ''For us, Alliance mutual fund's MIP is a clear benchmark,'' says the marketing chief of a mutual fund.

It seems this time the three MIPs are headed for a clash with UTI's monthly income plan. In the past, private sector players have feared a poor response to their schemes if the launch coincides with that of one from UTI. However, the tide is expected to turn this time - UTI will have to aggressively sell its MIP if it wants to garner a better mobilisation amidst competition from three other more investor-friendly monthly income plans.

Source: Value Research

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