In the staid world of Monthly Income Plan (MIP) funds, the Alliance MIP stands out for its relentless pursuit of performance. Inevitably, this comes bundled with higher risk, but if that's what you are looking for in your MIP, then there's nothing much wrong with this fund. Whether it's through higher allocation for equities or through buying lower-rated bonds, Alliance will try and get that little extra oomph out of your money. Its success at this strategy is reflected in its trailing two and three-year returns, which are the best in the category.
Alliance MIP has always maintained a higher allocation to equities—an average 12.45 per cent vis-à-vis the category's average 7.2 per cent through 2003. Thus, its performance mostly depends on equities. During the current bull run, it has delivered a healthy 8 per cent. However, this could backfire when the equities drop, as it happened in 2001 when the fund ended up in the category's basement. Its largest equity holdings, Punjab National Bank and Bharti Tele-Ventures, have both done well in the last few months.
The fund's debt portfolio is mostly made up of AAA-rated bonds and gilts, which together account for over 60 per cent of the portfolio. Initially, the Alliance MIP maintained a high gilt exposure and was caught on the wrong foot when the bank rate was unexpectedly hiked in July 2000. After this, the fund has reduced its gilt exposure in favour of lower-rated bonds. Till 2002, it invested an average 30 per cent in sub-AAA bonds, which, along with high equity exposure, helped it to be in the top 25 per cent in terms of returns that year. However, in 2003, with declining spreads, the fund has been scouting for quality bonds and has shunned lower-rated bonds. Presently, bonds rated lower than AAA account for just 14 per cent of the portfolio.
The fund's average maturity has always been on the higher side and is currently 4.12 years. This was largely responsible for its under-performance in the volatile months of January and March 2003. Although the fund has recently upgraded its credit quality profile on the debt side, its aggressive equity posture will continue to make it a volatile offering. Alliance MIP may be too racy for the kind of cautious investor who normally invests in MIPs, but it's a good choice for those who don't mind the occasional volatility.
This article was originally published on October 27, 2003.
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