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Getting By

Alliance MIP -- with a penchant for equity -- has managed to deliver regular payouts, though at times it has been erratic. This fund is recommended for those investors who can stomach some volatility.

With solid affection for equity, this fund has a set goal, deliver regular income. Usually sticking to its promise, this fund, however, has acquired a reputation of being erratic. Overall, Alliance MIP, though volatile, has managed to turn in reasonable returns vis-à-vis peers, keeping its high-income seeking investors happy. In comparison to all new-gen MIPs -- who largely stayed away from equities after the 2000 battering -- this fund has always indulged in equities. Its stock allocation -- ranging between 3% and 14% -- often comprises volatile stocks, which lend vulnerability to its performance. Its month-on-month performance proves that.

On the debt side, the fund's strategy of courting credit risk and avoiding interest rate risk needs a mention here considering that at the beginning it took 43% gilt exposure and parked the rest in corporate bonds. In trailing year though it reaped gains from high average maturity on occasions. Today, it is concentrating on high-yield, below AAA bonds. For instance, from a high 23% gilt exposure in January this year, it has now come down to 11%. Correspondingly, its average maturity has been reduced from 4.09 to 2.42 years. The new script reads like this: 40% in below AAA and an average 31% in AAA bonds. Wise thinking considering interest rates appear to have bottomed out. However, don't forget that a misstep could negatively affect its relative performance.

In the case of equities, owing to its early launch, Alliance MIP did manage to keep its head above waters in during the 2000 crash. Handsome gains through the tech frenzy helped the fund deliver monthly payouts during the downslide. Its volatile picks -- like Global Trust and HFCL – though hurt its performance. The result: its asset base shrank from Rs 727 crore in September 2000 to Rs 445 crore in one year. Even now, with the fund getting too concentrated in technology, regular payouts could be affected.

Overall, a high-income yielding option for investors who are comfortable with occasional blows to regular payouts. Opt for SWP to make the income payouts work in a tax-friendly manner.