The very concept behind an Asset Management Company which floats Mutual Fund issues, be it a growth fund, balanced fund or a debt fund, is that they provide professional management services to the investor’s money in terms of portfolio diversification and risk diversification. These companies offer investment units, which can be easily bought and sold thus enhancing the liquidity of the investments. Investors are able to enjoy the benefits that individual players in the secondary markets achieve at a higher risk. The introduction of the MIP schemes by AMCs is to cater to a niche segment of investors who would like to get steady returns either on a monthly or on an yearly basis. This article reveals the goals of MIPs and the perspectives of investors and fund managers.

One could always debate that people who are risk taking could trade wellin the secondary markets by themselves and manage their own portfolios. Mutual funds cater to the needs of the risk-averse population who would like to enjoy the benefits without an actual exposure to these markets. The so-called risk-averse population could further be classified into investors who would like to see their investments grow quickly and where returns are significantly high and another group of investors who would like to have a steady stream of income on a regular basis (monthly, quarterly, half-yearly or yearly). The emergence of MIPs to cater to the niche market of investors can be attributed to the following facts. In the real world, the niche market is very well the largest market in the mutual fund industry.

Monthly income plans are investment schemes, which offer returns on a monthly basis. Investors prefer these schemes as they are providers of a regular stream of revenues and do not entail too much of risk in terms of secondary market operations. AMCs realized that most investors are apprehensive of funds based on the stock markets, which have been dilly-dallying all the while. Tech funds which were once over subscribed several hundred times now do not attract very many. The MIP is here to stay and the following figures illustrate this fact.

The above table is a summary of the performance of the Income funds and the Other Funds (Growth and Balanced Funds) over the last six months. A stark difference is clearly visible in the performance of the Income funds as against the other funds. The Income Plans have been stable over the last six months and have shown a rise in the NAV values while the Growth and Balanced funds have lost out significantly. The secondary markets have been in ruins over the last few settlement periods and funds with portfolios based on the scrips of the Sensex have been badly hit. The investors have responded well to the income schemes released by most AMCs and now feel that they offer more value when compared to the high profiled Technology and Balanced funds.

Investors seem to have realised that fancy names do not deliver the goods. What they are looking is reasonable yields ( more than bank interest rates), for the investments. They found this facility in Income funds. That’s why all the recent income funds collected good money from the public. Shall we say that Income Funds are going to rule Mutual Fund Market in coming days ?

Deepak V Kuriakose