A steady companion: An aggressively high equity allocation successfully complimented by a steady debt component makes this fund a category topper.
As you move towards your twilight years, it’s important that your asset allocation helps you earn a monthly income to meet your regular expenses, in addition to growth. Mutual fund (MF) monthly income plans (MIP) are a good option as they are actively and professionally managed and are geared to take benefits of both equity as well as debt markets. We suggest you take a look at HDFC MIP-long term plan (HMLP).
The scheme
HMLP is a debt-oriented hybrid scheme that invests at least 75 per cent in fixed income instruments. It invests up to 25 per cent of its corpus in equities to earn a kicker in returns.
HMLP scores over traditional monthly income yielding avenues. While income from bank fixed deposits (FD), post office monthly income schemes and company FDs are taxed at normal income tax rates (33.99 per cent for highest tax bracket; all tax rates include surcharges and cess, for the highest tax bracket), they also come with a lock-in (3-6 years) and impose a penalty (1-2 per cent) for premature withdrawals. HMLP, being a debt fund, imposes 14.163 per cent per cent dividend distribution tax that it pays, on dividends distributed. Redemptions from HMLP after a year impose a mere 11.33 per cent long-term capital gains tax and no exit loads
All this comes at a slightly higher risk though. While income from traditional monthly income yielding avenues is assured, income from MFs is not. Further, MF MIPs like HMLP are exposed to equity markets as they invest a portion of their corpus in equities. Any rise or fall in the equity markets impacts HMLP’s performance to an extent.
Returns
HMLP is one of the best performing MIPs in India. Although it has one of the highest equity allocation amongst all MIP—partly the reason behind its strong performance, it has managed to ride the market well. HMLP has outperformed all the MIPs that can invest 20 per cent and beyond in equities over the past two and three years. The monthly income option of the scheme has consistently declared dividends since September 2004.
Portfolio
As HMLP is meant for the conservative MF investor, it invests up to 80-90 per cent of its debt assets in AAA-rated and equivalent securities. The fund manager invests in government securities (g-secs) as and when he feels there is an opportunity, like he did in the past three months. The fund manager feels that interest rates have almost peaked out and any fall in them would push the market prices of g-secs and debt scrips up; and thereby the fund’s net asset value.
Prashant Jain, considered to be one of India’s best equity fund managers, manages HMLP’s equity portion. Through its equity portion, HMLP aims to give a high degree of downside protection over a 2-3 year period. Its equity portfolio is pretty diversified and no scrip in it has accounted for more than two per cent of the total portfolio, since January 2007. It has held 30 scrips on an average in 2007, which makes the portfolio quite diversified. Jain also prefers to invest in the top two companies in any sector that he invests in.
HMLP’s top three sectors are capital goods, banking & finance and FMCG. Jain feels that capital goods will continue to perform based on high activity in the infrastructure sector, a growing economy like India also offers ample opportunity in the banking sector on the back of high consumer spending.
As you move towards your twilight years, it’s important that your asset allocation helps you earn a monthly income to meet your regular expenses, in addition to growth. Mutual fund (MF) monthly income plans (MIP) are a good option as they are actively and professionally managed and are geared to take benefits of both equity as well as debt markets. We suggest you take a look at HDFC MIP-long term plan (HMLP).
The scheme
HMLP is a debt-oriented hybrid scheme that invests at least 75 per cent in fixed income instruments. It invests up to 25 per cent of its corpus in equities to earn a kicker in returns.
HMLP scores over traditional monthly income yielding avenues. While income from bank fixed deposits (FD), post office monthly income schemes and company FDs are taxed at normal income tax rates (33.99 per cent for highest tax bracket; all tax rates include surcharges and cess, for the highest tax bracket), they also come with a lock-in (3-6 years) and impose a penalty (1-2 per cent) for premature withdrawals. HMLP, being a debt fund, imposes 14.163 per cent per cent dividend distribution tax that it pays, on dividends distributed. Redemptions from HMLP after a year impose a mere 11.33 per cent long-term capital gains tax and no exit loads
All this comes at a slightly higher risk though. While income from traditional monthly income yielding avenues is assured, income from MFs is not. Further, MF MIPs like HMLP are exposed to equity markets as they invest a portion of their corpus in equities. Any rise or fall in the equity markets impacts HMLP’s performance to an extent.
Returns
HMLP is one of the best performing MIPs in India. Although it has one of the highest equity allocation amongst all MIP—partly the reason behind its strong performance, it has managed to ride the market well. HMLP has outperformed all the MIPs that can invest 20 per cent and beyond in equities over the past two and three years. The monthly income option of the scheme has consistently declared dividends since September 2004.
Portfolio
As HMLP is meant for the conservative MF investor, it invests up to 80-90 per cent of its debt assets in AAA-rated and equivalent securities. The fund manager invests in government securities (g-secs) as and when he feels there is an opportunity, like he did in the past three months. The fund manager feels that interest rates have almost peaked out and any fall in them would push the market prices of g-secs and debt scrips up; and thereby the fund’s net asset value.
Prashant Jain, considered to be one of India’s best equity fund managers, manages HMLP’s equity portion. Through its equity portion, HMLP aims to give a high degree of downside protection over a 2-3 year period. Its equity portfolio is pretty diversified and no scrip in it has accounted for more than two per cent of the total portfolio, since January 2007. It has held 30 scrips on an average in 2007, which makes the portfolio quite diversified. Jain also prefers to invest in the top two companies in any sector that he invests in.
HMLP’s top three sectors are capital goods, banking & finance and FMCG. Jain feels that capital goods will continue to perform based on high activity in the infrastructure sector, a growing economy like India also offers ample opportunity in the banking sector on the back of high consumer spending.
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