The first of the new generation MIPs, Alliance MIP is fundamentally different from its closed-ended counter parts, with its open-ended structure. Also, unlike their closed-ended MIPs they do not assure monthly income. MIPs are essentially debt funds with a marginal equity exposure up to 15 %. While debt component offers steady returns, equity help the fund to beat inflation. However, while equities boost gains in the long term, they hold the potential to rock the boat in the short-term.
With a predominant exposure to debt instruments at an average 94 per cent, the fund has laid emphasis on steady income. It is largely parked in AAA quality instruments including Gilts, which carry better credit quality and enhance safety of capital. However, the fund does not shy away from taking a reasonable exposure to AA-rated papers. While the fund sought to augment returns by managing interest rate risk, in the recent rally, the fund has stayed rather conservative and missed out on the gains by not being on the higher end of the maturity spectrum.
A large part of the splendid return since launch at 17.48 per cent has come from a marginal allocation to equities. With investments in technology stocks coinciding with the ICE rally, Alliance MIP posted handsome gains. However, while tech exposure rakes in extra returns, it also makes the fund volatile - as the best and worst performance shows. Even as the fund adjusted to the turbulent markets by paring its equity exposure, it still continues to peruse growth investing with a 6.1 % allocation.
Alliance MIP holds potential to perform in the long run given its character. However, equities with their volatile nature in the short-term can swing the returns the other way as well. Thus investors should seek the fund for long-term performance rather than for steady dividend payouts.