Reliance Monthly Income Plan: A Review

With a return of 10.3 per cent annually in the last five years, and around 11.2 per cent since its launch in January 2004, Reliance MIP is amongst the top performers in the monthly income scheme or debt-oriented category. This return is also a good three percentage points over its benchmark, Crisil MIP Blended Index.

With a higher average portfolio maturity compared with a few of its peers, the fund’s debt portfolio may deliver over the next 18 months when more interest rate cuts happen.

Risk profile

Firstly, even though it is a debt-oriented fund, Reliance MIP can invest up to 20 per cent in equities. That means in times of steep equity declines, the fund can slip into negative returns in the short term. However, over a three-year period, Reliance MIP has never given negative returns to its investors.

Secondly, even among the category of debt-oriented funds, Reliance MIP can be risky as it tends to take aggressive debt calls in anticipation of interest rate movements. Still, thus far, it has compensated investors with returns for the risk assumed. Though the fund is not obligated to declare dividend regularly, going by its dividend track record, you can expect it to provide you with some additional income stream. Reliance MIP also has a good record of declaring steady and high quantum of dividends for those who opt for pay out.

Performance

Reliance MIP has consistently (over 5 and 10-year periods) been among the top debt-oriented funds. The fund’s three-year rolling return, since its inception, is an average 11 per cent compounded annually. During any three-year period, the fund has never given negative returns to its investors. That means, irrespective of when you invested, your average three-year returns would have been around this figure.

HDFC Multiple Yield Fund 2005 comes close to this number on a rolling return basis. But it is to be noted that HDFC Multiple Yield Fund 2005, often times, goes over 20 per cent on equities. Reliance MIP sticks to its mandate and never went beyond the 20 per cent cap in equity since its inception.

Among the universe of MIP funds, Reliance MIP also scores well on a risk-adjusted basis too (as measured by the Sharpe ratio).

Returns over one year are annualised.

Reliance MIP has had its down periods too. It did not have a great period between late 2007 and the first half of 2008. Besides being hurt by the equity downfall in early 2008, the fund had anticipated an interest rate decline a little too early. As a result, it suffered negative returns in the first quarter of 2008 and remained lacklustre up to mid-2008. But to its credit, it made up by gaining 14 per cent in the December 2008 quarter when interest rate cuts began. This illustrates how the fund can bounce back.

Portfolio

The fund invested 80 per cent of its portfolio in debt instruments. Reliance MIP currently sports a debt portfolio with an average maturity of 13.6 years. That’s higher than the maturity profiles of other MIPs. However, if interest rate cuts act in its favour, then the fund can deliver more.

Reliance MIP’s debt component is very actively managed; equal focus has been given to accruals and capital appreciation through active duration calls. The fund has one third of its assets in government securities and about 44 per cent in corporate bonds that are both AAA and AA rated.

Reliance MIP has a reasonably diversified equity portfolio. Historically, the fund has had a 10 per cent average exposure in large-cap stocks (above Rs 10,000 crore market capitalisation) and 5 per cent each in mid-cap (Rs 2,000-10,000 crore market cap) and small-cap stocks (below Rs 2,000 crore) respectively.

The fund is managed by Amit Tripathi and Sanjay Parekh.