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Templeton MIP: Monthly option

With a focus on providing regular income, Templeton MIP-Dividend option has steered clear of equity. Picking up yields in its corporate debt instruments has resulted in a 11.29% return since launch.

Templeton MIP-Dividend option, a new generation MIP offers liquidity with its open-ended nature. Further, unlike its closed-ended counterparts, they do not assure returns. Templeton MIP-DM, while not assuring returns, has paid a total dividend of 11.2%.

The charter permits it to invest predominantly in debt papers, and up to 15% in equities. Launched at a time when equity markets were on a bull-run, the monthly dividend option, which is managed separately, has prudently stayed away from the volatility of the equity investments. However, the fund proposes to gradually take position in equities once it gets enough buffer under this option.

It started off with a portfolio, predominantly invested in high quality AAA rated instruments. These instruments minimise both credit and liquidity risks ands hence, offer a lower coupon. Gradually though, the fund has sought to augment returns with AA rated papers, which chip in higher returns for being lower on the credit quality. These instruments account for 30% of the corpus in June 2001, while AAA instruments account for the rest. Besides the risk of default, bond prices are also susceptible to changes in the interest rates. The fund has deftly handled interest rate risk by holding on to a conservative maturity spectrum.

In its short stint the Templeton MIP-Monthly Option has posted an annualised return of 11.29%, while treading a cautious path. While this is in line with the market return, investors would do well to realise that with overall interest rates on a decline, these returns would be difficult to sustain. Further, while the fund has been prudent to stay away from equity, any future stance could impart volatility to the fund.