Archive for July 8th, 2009

Monthly income funds back with a bang, payouts grow


The turnaround in the capital market since early March has come as a boon for monthly income plans (MIPs) of mutual funds. Buoyed by rising indices and consequent improvement of their net asset values (NAV), MIPs have resumed giving healthy dividend.

MIPs are hybrid products that invest a portion of the portfolio in equities that could go up to 25 per cent and the rest in debt and money market instruments. An MIP pays dividend at regular intervals. Based on the choice of the investor, this interval could be monthly, quarterly or half-yearly.
Dividend payment by MIPs had taken a heavy beating towards the end of 2008 and the first couple of months of this year. This happened due to the slump in the capital market, which was impacted heavily by the domestic economic slowdown and the global financial crisis.

In the past three months, MIPs have given as high as 5.9 per cent monthly dividends (that is, 5.9 per cent of the face value of total number of units held by an investor). On a quarterly basis, the dividend has been as high as 13 per cent.
Mutual Fund

Franklin Templeton India MIP Bonus Fund, that gave a dividend of 0.96 per cent in February, distributed 4.5 per cent dividend at the end of April and 5.90 per cent in the beginning of June. Similarly, DSP Black Rock (DSPBR) Savings Ma-nager Moderate paid a dividend of 0.36 per cent in March, which rose to 1.70 per cent in April and 3.15 per cent in May. Reliance Mutual Fund paid 0.53 per cent dividend under its monthly income plan in January and increased it to 1.75 per cent in April and 2.24 per cent in June.

The quarterly payments of dividend under MIPs have also seen significant increase between March and June quarters. In the quarter ended March, Reliance MIP paid a dividend of just 0.70 per cent, which jumped to 13.31 per cent in June. In case of DSPBR Savings Manager Consv-DQ, the March quarter dividend was a meagre 0.79 per cent, which rose to 2.63 per cent in the quarter ending June. ICICI Prudential MIP paid a dividend of 0.88 per cent in the March quarter compared with 2.16 per cent in June.

Experts say though the equity investment of most MIPs is not more than 25 per cent, the kind of jump that the stock market has seen in the past three months is enough to generate good distributable earnings for these funds.
Alok Singh, head (equity and structured products) of Fortis Mutual Fund, said a fund normally distributes dividend when its earnings increase. “The recent market rally has resulted in decent growth of NAVs of these funds,” he added.
In the past three months, the average returns given by monthly income funds has been 7.69 per cent with the highest category return being 17 per cent. Jagannadham Thunuguntla, equity head of SMC Capitals, said mutual funds must pay good dividends to make schemes more attractive for investors as equity market conditions are improving.

In 2008, when the equity market was in the doldrums and mutual funds were facing a severe liquidity crisis, most MIPs failed to pay regular dividends to investors. The percentage of dividend paid has seen a growth since April, though all mutual funds have given regular monthly dividends.