I have ₹1 lakh which needs to be invested in a monthly income scheme. I read your magazine Mutual Fund Insight and identified IDFC MIP Plan Regular as a scheme that may be good for me. As per your magazine, the NAV was ₹15.63 and last year's annualized return was 17 per cent. I assume market will be good in 2015 also and the fund may again deliver 17 per cent returns. My question is - Is the 17 per cent calculated on invested value which is ₹100000? Or is it computed on number of units which is 6200 at the current NAV? If it is on ₹1 lakh, then the income will be ₹17000. If it is on 6200 units then will be ₹10500. Which of these assumptions is true?
- Krishna Kumar
There are three clarifications here. One, given the equity component in MIPs, you cannot be sure that last year's return will be repeated this year. Even if the stock market performs in the same manner in 2015 as in 2014, the stocks held in the portfolio may deliver different returns. Two, the return is calculated on the basis of the change in the NAV of the fund between two different dates. For instance, IDFC MIP Regular Plan's NAV was ₹15.63 as on 31st October 2014 and ₹13.35 as on 31st October 2013. This resulted in a return of 17.04 per cent as on October 31 2014. A fund is always bought and sold at the prevailing NAV and the gains or losses are determined on the basis of the NAV from the date of purchase for the investor.
Three, the returns of 17 per cent on the scheme do not equate to your annual or monthly income. The return shows that the securities held by the fund appreciated by 17 per cent (after expenses) in the last one year. Out of this gain, the fund may choose to distribute only a part as dividends. Therefore, though the scheme's returns were ₹17000 for the year, the dividends received by investors could be much lower.
This article was originally published on February 17, 2015.
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