MIP plus funds provide the right mix - debt, equity and gold

MIP plus funds provide the right mix - debt, equity and gold

In recent past both domestic and international equity markets have been at their volatile best. This volatility has elevated gold’s importance as an asset class. It has gained ground largely due to the uncertainty over the pace of the global recovery. For investors who want to diversify their portfolio and also want to protect their overall wealth, gold is the most suitable and preferred asset. It has been observed that gold tends to perform well when the other asset class particularly equity goes south wards. A little allocation in gold provides support in the portfolio. Gold, traditionally considered as a hedge against inflation tends to perform well in economic crises.

Traditional Monthly Income Plans combine debt portfolio with a small equity allocation. Off late, fund houses are now coming up with the funds that invest in a combination of equities, fixed income securities and gold exchange traded funds (ETFs) with the aim of improving diversification and enhancing performance. It attempts to further improve the returns of the MIP while also reducing volatility. These types of funds are known as MIP Plus funds. It offers an interesting investment proposition by providing exposure to 3 major classes (debt, equity and gold). These kinds of fund are suitable for conservative investors who can take small exposure to equities to lend support to the overall returns of their portfolio. These funds adding gold as part of its diversification can marginally increase the return and also reduce volatility in comparison to the monthly income plans that are currently available in the market. Gold has a low or negative correlation with most of the asset classes, which means that its price changes are independent of price changes in other asset classes like equities and debts. Gold is also named as insurance of your complete asset allocation as it covers the risk of complete erosion due to excess allocation towards one asset class.

The fall of equity market over the past few months has amplified the importance of multi asset funds in investor portfolios. This kind of product offers stability of debt, growth from equities as well as overall diversification from gold.

Scheme Name Launch Date Axis Triple Advantage Fund 23-Aug-10 Canara Robeco InDiGo Fund 09-Jul-10 Fidelity India Childrens Plan - Marriage Fund 07-Feb-11 Kotak Multi Asset Allocation Fund 21-Jan-11 Peerless MF Child Plan 05-Apr-11 Religare MIP Plus 01-Jun-10 Sundaram Equity Plus 24-May-11 Taurus MIP Advantage Fund 06-Aug-10 UTI Wealth Builder Fund - Series II 17-Dec-08

Simple Annualised % (Point to Point) Scheme Name 1 Month 3 Months 6 Months Canara Robeco InDiGo Fund 8.70 14.67 10.14 Kotak Multi Asset Allocation Fund 3.69 11.34 -- Religare MIP Plus 1.64 12.25 5.20 Taurus MIP Advantage Fund 1.76 10.39 4.25         Indices       Crisil MIP Blended Index -5.70 6.83 2.23 CRISIL Short-Term Bond Fund Index 3.27 6.73 5.73 Returns as on 31st May 2011

Canara Robeco Indigo fund:

Canara Robeco is one the fund that invests only in debt and gold ETFs. It is an open ended debt scheme, launched in July 2010.  The scheme invests a minimum of 65% and a maximum of 90% in Indian debt and money market instruments, a minimum of 10% and a maximum of 35% in Gold ETFs. The performance of the scheme is benchmarked against CRISIL Short Term Bond Fund Index and Price of Gold. With Fixed Income & Gold being together in the portfolio, there is a blend of steady flow of income in form of coupons coming from the fixed income securities and capital appreciation coming in from the gold ETF investment. The fund restricts itself to low duration credit worthy fixed income options and generate the additional returns through allocation to gold.   The scheme has delivered 10.14% simple annualized returns in just 6 months.

Kotak Multi Asset Allocation fund

Kotak Mutual fund has introduced a new fund called Kotak multi asset allocation fund, launched in January 2011 as the name suggests it invests in multiple assets namely, debt, equity and gold. While debt will be a minimum of 75-90 % of the portfolio, the balance 5-20% will be invested in equities and 5-20% in gold ETFs (exchange traded funds), respectively. The scheme's advantage is that it offers a ready asset allocation for investors who are looking to invest a predominant part of their money in debt (75-90%), with the balance in equity and gold. The scheme had delivered double digit simple annualized returns of 11.34% in just 3 months.

Religare MIP Plus

This is one of the oldest schemes in the category which was launched in June 2010. It is an open ended income scheme, where the fund has the flexibility to invest minimum 65% of its assets in debt and in the range of 10–35% in Gold ETFs and 25% in equity and equity related assets. The scheme has generated 12.25% and 5.20% simple annualized returns in 3 and 6 months respectively. The fund has increased its debt allocation from 18% to 47% as on April 2011 compared to February 2011.

Taurus MIP Advantage fund

Taurus MIP Advantage invests 65-95% in debt, 5-25 % gold ETFs and 0-25 % to equity. The fund captures seasonal patterns in gold by actively managing the allocation to gold. The fund has generated 10.39% simple annualized returns in 3 months. The fund is cautious of its exposure to gold with a 6-8% of exposure being maintained over the past three months.

There are some fund houses that have launched equity-oriented schemes with a tinge of gold ETFs. A fund like UTI Wealth Builder Fund - Series II is a fund which invests at least 65% in equities and 35% in gold ETFs. Since its launch, it has generated about 31.88% compound annualized return till as on 31st May 2011. There is another fund which recently joined the gold rush by launching Sundaram Equity Plus. According to the fund house, the scheme will primarily focus on opportunities in Indian equities, with the addition of a gold-ETF providing diversification and exposure to the relative attractiveness of gold in certain phases. The fund has been launched in May 2011. Peerless Mutual fund launched Peerless MF Child Plan, a multi asset class product wherein the investment will be made in debt, equity and gold ETFs. The fund provides systematic investment plans (SIPs) to help investors build capital in installments. The fund was introduced in April 2011. Fidelity Mutual fund introduced new scheme called as Fidelity Child Plan – Marriage fund. This fund exposes its investors in 3 major asset classes- equity debt and gold. This fund aims to protect against rise in gold prices while saving for children’s marriage needs. Even Axis Mutual Fund has launched Axis triple advantage fund in August 2010 which invests in mix of three asset classes namely, equity, fixed income and gold.