I have an investment horizon of about 1-3 years and am not averse to a small equity component in my portfolio. I have invested in Reliance MIP, which is now a medium-term debt fund. Should I stay invested here or should I look at other monthly income plan schemes (MIPs)?
Amit Savla, via e-mail
It is good that you keep a close eye on your investments and have a clear-cut idea about what your investments should achieve for you. Although you will find enough literature on when to buy a fund, there is very little information available on when to sell a fund. The timing about when you should sell a fund is as important as when you buy a fund. You may have bought the fund at the right time but if you don't have an exit price or an exit time in mind, the benefit of buying it right could be lost.
Reliance MIP, as you are aware, is now rechristened as Reliance Medium Term Plan. This medium-term debt fund is being positioned for investors with an investment horizon of 2-3 years. While this scheme meets your first criterion, it doesn't fulfill the second requirement that you mentioned—of mild equity exposure. In fact, Reliance MIP—unlike other open-end MIPs—has never invested in equities since its launch in September 2000. Its parent, Reliance Capital Mutual Fund, in a bid to complete its product portfolio introduced an MIP scheme. However, the stock market debacle discouraged this scheme from taking equity exposure. Reliance MIP, therefore, has looked more of an income scheme.
On the performance front, Reliance MIP had done as well as any other MIP (with equity exposure) scheme.
All this may make any investor think that why should he or she take on extra risk with equities when you are getting similar returns from a pure bond portfolio. However, remember that in the past couple of years, interest rates have come down drastically. This, in turn, has boosted the market value of fixed income instruments as well as fixed income funds that invest in these instruments. So far, this category has witnessed some really great times, but it is unlikely that this can be sustained for a very long time. And this is what makes a strong case for equities.
So, if you want returns which are slightly higher than what pure income funds will offer in the coming months you will have to move to an MIP which has an equity component. Valueresearchonline.com provides a fund compare tool where you can look at the performance of different MIP schemes on various parameters. And this should help you in your search for an MIP.