Should I switch form income fund to MIP? I invested about Rs 5 lakh in some income funds in October 2003. These funds are HDFC Income, Chola Triple Ace and Pru ICICI Income. Since return on these investments is very low what should I do? Can I switch to MIPs after paying exit load in the income funds and entry load in MIPs? Will it be advantageous?
Sandip Shah
With the debt markets consistently showing signs of higher volatility, we are also at times tempted to think on your line. But these are short-term issues. Income funds are not meant for short-term investment. Income funds should be looked at with a longer investment horizon of at least a year or so.
Since your investment is just five months old, we would suggest you to stay invested in them for at least another seven to eight months. Though MIPs have given excellent return in the past one-year, but that was primarily because equities were going great guns.
That pace has, in fact, slowed down in recent months and the equity market is also taking a volatile trajectory. This could make investment in equity-linked products including MIPs more risky than it was six months back. For instance in the one-month period ending February 20, 2003, the BSE Sensex lost 1.21 per cent, which was twice the fall in the JP Morgan G-Sec Index.
By staying invested in an income fund, the risk of losing your money is to some extent guarded, which is unlikely to be the case in MIPs. The MIPs are and will remain more volatile vis-à-vis income funds due the marginal equity component. Moreover, all the three income funds selected by you have given above average return in the last one-year. Thus, we would not advise you to switch to the MIPs. Think long-term.
And lastly, for your information, MIPs don't charge any entry load. Just like income funds, they too charge a CDSC of 0.5 per cent if redeemed within six months.
This article was originally published on May 03, 2004.
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