REINVENTING KOTAK INCOME PLUS
Monthly Income Plans became the flavor for some time when Debt markets yields started inching up post October 2003. 10 year benchmark had breached the 5% mark in October 2003; however from there on the debt market yields started inching up. To counter the rising yields, most of the Fund houses resorted to selling aggressively MIPs even to corporate clients (who by then had got used to double digit figure returns in Income Schemes). Concept was sold with a view that 15-20% exposure to equity would give the kicker to the returns & 80% debt would safeguard the investors from equity volatility.
This was the most mis-sold concept; especially to corporate clients who have to show their MTM losses on Q on Q basis. Most of the MIPs have 15-25% in equities & the same can go negative on month on month or on quarter on quarter basis; giving rise to negative returns for some time. The same was proven correct at the time of huge market correction in May-June 2004 when election results were announced & congress came back to power. Most of the MIPs posted huge negative returns in that quarter ending June; thereby forcing corporates who had invested in MIPs to cut their losses.
In between, since the said asset class had lost flavor with the investors, the schemes were given step motherly treatment & most of the fund houses had lost focus on the same. However, with reviving equity markets & volatile debt markets focus has once again seems to have shifted back to this asset class.
Also, MIP by its sheer name connotes that there should be continuity in dividend payouts on Month on Month basis & is ideally suited for investors like senior citizens, HNIs & SMEs. Since the corporate funds got involved, this category of schemes started getting a different treatment from fund houses. However, as most of the Fund Managers started running the debt portion as long term Income schemes & started taking more equity exposures ( there are 75:25 & 70:30 variants as well ) , the said schemes started posting negative returns from time to time; thereby forcing the fund houses to skip monthly dividends in the years when debt market yields inched up or equities performed badly ( specific years like 2004 & 2008 when equity & debt markets went haywire, lot of schemes skipped monthly dividend payouts).
However, in the past I had done some analysis which proved that MIPs have never posted negative returns on one year rolling return basis. Hence, if one stayed invested for a period of one year from their date of investments; chances are that they would not have posted negative returns for that period.
I would recommend you to look at those schemes; where the Fund House has now shifted their focus back & likely to run the scheme more conservatively with a focus to generate regular monthly income.
Kotak Income Plus (80:20 MIP scheme) is reinventing their scheme by focusing on their scheme. They have already started running the scheme based on following parameters; which is reflecting in their performance as well:
|
Monthly Income Plans |
|||||||
| Fund |
Returns |
||||||
|
YTD |
1 Day |
7 Days |
14 Days |
1 Month |
3 Month |
6 Months |
|
| Kotak Income Plus |
8.81 |
54.64 |
55.38 |
19.74 |
10.89 |
13.08 |
20.46 |
| As On August 19’2009 | |||||||
- Lower on duration ( not more than 1-1.5 yrs in average maturity); thereby reducing interest rate risk
- High on accrual by investing in highest quality NBFCs, PTCs, State loans etc. This will ensure high probability of monthly payouts
- Equity component to be used for absolute gains & through strategies of writing options & IPO plays
- Above strategy based on current market conditions should earn approx. 5-5.50% p.a. from debt component & approx. 3% from equity exposure of 15-20% giving an overall yield of 8-8.50% p.a.
Kotak Income Plus is reinventing their scheme & likely to follow the above strategy to a) safeguard investors from undue volatility, b) ensure monthly dividend payouts & c) give better returns than debt markets ( Liquid Plus schemes are generating only 4.50% to 5.00% p.a. & Income schemes currently are in negative territory)
Following is the analysis of monthly dividends declared by various AMCs since their inception. It will also show the frequency of declaration of dividend i.e. if they have declared dividend in a Financial Year in say 7 months out of 12; it will show frequency as 7/12. What this means is that the said fund house has not declared dividends in the balance 5 months.
|
|
Birla Sun Life MIP II – Savings 5 Plan |
Birla Sun Life MIP II – Wealth 25 Plan |
ICICI Prudential MIP |
Kotak Income Plus |
HDFC MF Monthly Income Plan – Long Term |
HDFC MF Monthly Income Plan – Short Term |
RELIANCE MONTHLY INCOME PLAN |
FT India Monthly Income Plan A |
||||||||
|
Period |
Freq |
% age |
Freq |
% age |
Freq |
% age |
Freq |
% age |
Freq |
% age |
Freq |
% age |
Freq |
% age |
Freq |
% age |
|
Apr01 – Mar02 |
|
|
|
|
12/12 |
9.21 |
|
|
|
|
|
|
|
|
12/12 |
9.00 |
|
Apr02 – Mar03 |
|
|
|
|
12/12 |
7.22 |
|
|
|
|
|
|
|
|
10/12 |
8.80 |
|
Apr03 – Mar04 |
|
|
|
|
12/12 |
6.67 |
|
|
|
|
|
|
|
|
12/12 |
9.77 |
|
Apr04 – Mar05 |
|
|
|
|
12/12 |
6.29 |
6/12 |
2.85 |
9/12 |
5.50 |
9/12 |
5.40 |
9/12 |
5.89 |
12/12 |
6.32 |
|
Apr05 – Mar06 |
12/12 |
5.09 |
12/12 |
7.56 |
12/12 |
7.76 |
12/12 |
6.15 |
12/12 |
8.10 |
12/12 |
7.20 |
12/12 |
7.01 |
12/12 |
8.07 |
|
Apr06 – Mar07 |
12/12 |
5.48 |
12/12 |
7.27 |
12/12 |
7.54 |
11/12 |
6.35 |
12/12 |
8.40 |
12/12 |
7.20 |
11/12 |
6.95 |
12/12 |
12.19 |
|
Apr07 – Mar08 |
12/12 |
8.20 |
12/12 |
11.69 |
12/12 |
8.24 |
12/12 |
7.32 |
12/12 |
9.40 |
11/12 |
6.60 |
12/12 |
13.27 |
12/12 |
16.12 |
|
Apr08 – Mar09 |
13/12 |
7.59 |
2/12 |
1.40 |
12/12 |
8.41 |
6/12 |
3.66 |
9/12 |
9.60 |
0/12 |
0.00 |
8/12 |
10.84 |
6/12 |
4.12 |
|
Apr09 – Aug09 |
4/5 |
2.79 |
2/5 |
1.48 |
4/5 |
3.59 |
2/5 |
1.24 |
5/5 |
3.00 |
4/5 |
2.00 |
5/5 |
6.14 |
3/5 |
2.01 |
Aug 09 as of 27th Aug 09
From this analysis, both ICICI Prudential & Birla Sunlife MIP II-Savings 5 plan have a consistent track record of declaring monthly dividends in all years since their inception. Though Kotak Income Plus does not have a great track record of dividend payouts, with their new strategy as mentioned above, one should expect a consistent performance going forward.
I would recommend you to look to invest in the said schemes with one year investment horizon
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