Risk-return profile, (Monthly Income Plan) MIPs fit between a bond fund and a balance fund. Both equity and fixed income portfolios are managed in a dynamic manner to generate superior risk-adjusted returns. The asset allocation and individual security selection are done keeping in mind the investment objective with a particular focus on containing volatility. These funds have a predominant fixed income portfolio for generating stable income while marginal exposure to equities is taken to generate capital gains. The fund has potential to generate higher returns compared to a bond/income fund, albeit with a slightly higher level of risk compared to a bond fund.

Equity: Maximum exposure to equities is capped at 15% to 30% (depends on fund aim). The objective is to maximize returns through a well-diversified equity portfolio with tightly defined internal guidelines. As a risk management tool, concentration in holdings is avoided and normally, maximum exposure in a single stock is capped at 1-3% of the portfolio value. Booking of profits is regularly done once price target has been achieved.

Debt: Fixed income part of the portfolio has a mix of government securities, high grade bonds and money market instruments.

Is the Monthly Income Plan for me?

If you are risk averse or on retirement it will work in your favour. I advice it for a different reason. Normally, even if a person is insured, he should have MIP in portfolio too, so that he builds a “near” monthly (or quarterly) income for his family. You could do that with bank fixed deposit too. Just that the MIP dividends are tax-free. You could choose how risky your MIP should be. This can be done looking at the equity exposure of the MIP.

www.new.valueresearchonline.com or http://valueresearchonline.com/ or waterever url Value Research India Pvt Ltd might be using, used to be the most used portal for mutual funds in India. Let me put it in perspective. When I entered the mutual fund business, getting information from a single source was difficult. Value Research seemed to be the only one then. It cataloged the NAV’s and news on MF’s. It has a mutual fund focused pricey magazine, which I once read and lost interest to subscribe it annually. I also never read it again. Since, there was fund pushing and NFO’s ruled, there was no need to do much product research. The need to get latest NAV from a single source was bit of a need and that’s where Value Research came in. Value research used to (and still) grade the funds as per stars. Most of us never bothered with their methodologies and saw it as an indicator. It used to be meaningless as commissions used to be the driving factor. The investors looked eagerly for NFO’s (just like IPO’s). Some fund managers and magazines quoted the Value Research grading and that’s all. Nobody bothered and everybody made money.

2008 changed all that. The markets fell. everybody panicked, lost money. SEBI came up with rules that benefited imaginary customers. Just like the NSDL and SEBI alienated small stock market investors (NSDL charges 350 Rs/ year for few kilobytes of space in a server and an army of clerks maintaining it. Oh! what a waste), it has alienated small MF investors too. Value Research came out with tons of write ups on its website and its CEO Dhirendra Kumar spewed Page 3 equivalent gossip on news rolls and television about the entry load and other changes.

I took this opportunity to review this website again last month. Here is what I think.

1) It still is a data and record keeping website and has failed to change with times.
2) Other websites have come up which give you much more tracking and decision making features. Since, Mutual fund was/is also sold product like FD’s, NCD’s etc (by insurance agents), use of Value Research just for MF’s ( and may be stocks) doesn’t justify time and effort. Value Research is woefully under equipped for stocks. I don’t see people using it to track the stock markets no or in future.
3) It ignores (and misleadingly anti ULIP) Insurance. Most Financial sellers sell insurance and there is no equivalent financial product that has such a big sales force. Other websites have a provision of tracking ULIPS, Loans etc.
4) Its easy to compare MF’s and its performance and can be done with much better ways on new generation websites.
5) Its own analysis section is weak, even in its bread and butter MF focus. CRISIL and other agencies seem to have much more credible ratings.

Based on the above reasons, I have shifted the clients portfolios to one of the new generation website.

August 1, 2009 is a landmark date. No, I am not going to praise or crib about the Mutual Fund entry fees abolition. I am writing this to make investors aware of the processes that went through, so that they might be aware why financial regulators are to be scrutinized too. There are many instances, but, let me concentrate on SEBI, which is currently in my direct line of influence.

The run up to the Mutual Fund entry load waiver:

I will skip the dates here but let you know the rest of the story. If you don’t know (for those who don’t know), SEBI comprises of a lot of directors drawn from various aspects of financial services. This includes 2 directors from the side of investors (I am sure majority of the investors cannot name them), 3 from mutual fund side, then from legal side, from the cost accountant side etc. So, when the proposal for entry load waiver was proposed by the investor directors, the Mutual fund Directors flatly refused (that’s what MF AMC’s say). Subsequently, the proposal was put up for vote on SEBI intranet. This was almost 6 months back. Then one day, SEBI Chairman C.B. Bhave announced the entry load waiver. MF AMC’s claim that they were surprised. They do not have the results of the vote, they say.

Now the AMC’s have their own agendas since the SEBI order. Most MF AMC’s have parent corporates which have interest in insurance, financial products distribution, bank etc. Now, Some MF AMC do not have such parent companies who have such diverse interest. These AMC’s started targeting ULIPS. You know ULIPS are mutual funds direct alternative and not competitors (I never recommend ULIPs anyway). There is a difference between them in terms of investment horizons, amount you can sell etc.

So there is a tussle among the AMC’s. Since some of the AMC’s parent companies have insurance companies, they did not want to participate as they might loose revenues in both MF and Insurance. So, the MF AMC’s changed their tactics, on how to make best of the situation. They declared their love for S D Bhave and how experienced he is and how best they can stop churning in their funds and how they can keep the distributors hooked. Churning is good or bad? You can read my thoughts here. Some private insurance companies downloaded the names and address of the MF Distributors and approached them saying that since entry fee is off in mutual fund, why do they want to sell it? If MF distributors can show how much business they can pass of to the insurance company, the insurance company can work out a better commission etc etc.

At the same time MF AMC’s are fighting to lower the distributor commissions in Life Insurance too, instead of fighting to get it increased in MF. They do not realise that they will take down the entire distribution set up with them.

Now what about the investors?

While you can read and hear some of the prominent MF AMC heads mouthing “good for customers” line in media, you can understand if they actually mean it by the description above. what was SEBI’s chairman’s hurry to do this when his MF directors allegedly refuse? Why it had to be done in sly? More intriguing when SEBI has already taken a stance that investors can go directly to MF AMC’s to purchase investments directly.

Now can’t this be implemented in a phased manner, asking investors to exit mutual funds if they are not in tune with the changes? What if the investors wanted to exit the MF and take up ULIPs if they detect that MF’s have become costly. You know, different people react differently.

Now CD Bhave’s often quoted “investors empowerment” reasoning. He speaks big words that investors don’t understand. Investors even though being an informed lot, do get stuck up due to other reasons like not having time etc. Now, if SEBI kills the mutual fund distributor like it killed most sub brokers from stock markets, how is the existing investors going to get benefited? Secondly, by just allowing exit load, SEBI thinks it has done a favor to mutual funds. This move will hurt investors and SEBI has closed its eyes to other possible non monetary exit barriers to mutual fund investors. Like for example MF AMC’s have improved incentive’s to the distributor on trail commission so that the investor does not exit. How exactly is this a investor empowerment?

Now what I am going to tell you is not related to financial investment, but, you can connect it to how customers are being treated by the regulators. You all know electricity prices are high, goods prices are high due to fuel prices etc. Lets take a leaf from the Ambani brother’s feud. Government version is RIL should charge $4.2 as a base price for its gas from the KG basin. Anil Ambani says that “The burden of the higher gas prices will eventually be borne by hundreds of millions of power and fertilizer consumers. The higher gas price demanded by RIL increases the cost of power for consumers by as much as Rs 1 per unit.” What Anil Ambani says further is more shocking, “The situation seems even more bizarre, if one looks at other markets in the world. In the Middle East, gas prices are currently ruling at $1.5, or just under one-fourth of the delivered price in India. India now has among the highest short-term gas prices in the world, nearly 30% higher than even in UK and the US. In our view, it would be against public interest to price gas in India for any user above $ 1.50.”

Just yesterday I wrote for investor activism (Please read Killing LIC softly ). “Investors should be shielded from the regulator” is the need of the hour. Investor / consumer activism should evolve against the regulators too.

Reliance Infrastructure Fund yesterday opened with a NAV of Rs 10.0704 per unit. Since the NFO closed on June 23, it has re-opened for fresh investments and sales.

Will update more details as I get them.

Fund managers have wised up. I have seen good returns even on the days market fell (read profit booking). In my opinion its wise to invest in Mutual funds now. For risk takers there is a caution. Stick to known performing funds. Don’t buy exotic varieties. Avoid a lot of NFO’s, stick to mature funds which will give you returns. I did promote Reliance Infrastructure Fund because its primarily a general fund with sectoral bent. Infrastructure and related industry is a broad term. Hence getting Rs 10 NAV at 14000 to 15000 SENSEX was a good deal. But, had you invested in existing good funds like SBI MSFU Contra or BSL Frontline Equity or HDFC Top 200 or other, you could still have benefited massively. Hopefully, Reliance has deployed at least 50% of the loot. Try Mid caps too. They will be good bet.

I would suggest low to mid risk takers to buy up UTI schemes. Some good funds are Wealth Builder II, Dividend Yield and opportunities. Also try balanced schemes from other mutual fund with larger tilt to equities. Birla freedom Fund should also do.

Ladies, don’t miss UTI Mahila Unit. Its expected to give you 15% compounded. Its a very stable fund with some good decisions by the fund manager.

On income side, my favorites are still HDFC MIP Long term and Birla Sun life Options.

One thing you should understand is this time of the market phase you should aim on making money.