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Aiming High

In the pursuit of higher returns Alliance MIP will take on higher equity exposure and this could mean higher risks too. Thus high-income seeking investors ready to stomach some volatility could end there search here

This fund, unlike other MIPs, does not shy away from taking risks to give higher returns. Its returns of over 15 per cent since launch, and high dividend payouts of 11 and 13 per cent, respectively, in March 2000, under its monthly and quarterly dividend options, bear testimony to this. However, in its pursuit of higher returns, risks will also be higher. This is reflected in the fact that it has on three occasions missed paying dividends.

Initially, the fund was able to clock high returns due to its high equity exposure. Launched before the technology rally, it made substantial gains by investing in the technology sector. But this high allocation to equity also resulted in the fund recording negative returns in the months following February 2000 when the market crashed. Following this, Alliance MIP has maintained a low exposure to equities. Post-February 2002 though, the fund seems to have reversed course and has been once again moving heavily into equities.

Initially, Alliance MIP maintained a high exposure to government securities. This also had its costs. It was caught on the wrong foot when the bank rate was unexpectedly increased in July 2000. After this, the fund has reduced interest rate risk and maintained a low average maturity. This year, before the bank rate cut in October, it increased the maturity beforehand to provide return of two per cent in November.

The pursuit of higher risks is also reflected in the fund's approach towards corporate bonds. Although intermittently it does focus on AAA papers, but with falling interest rates, the exposure has been reduced from a high of 52 per cent in March 2001 to 37 per cent now. The fund is of late looking at AA papers. This focus on AA papers has been evident in late 2001 and early 2002, when it touched an average 41 per cent, which was the highest in the category. This high exposure also brought in debentures like Max (India), which has been twice downgraded in the last one year from AA to BBB.

At the end of the day Alliance MIP tries to give high returns and does not shy away from below AAA papers and equities. If you demand higher returns and can stomach the extra risk, this could be the MIP for you.