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S. Vaidya Nathan

INVESTMENTS can be considered in the Alliance Monthly Income Plan as it has a good track record across various time periods. The fund has turned in returns of 15.4 per cent per annum since inception, and 15.6 per cent, 10.9 per cent and 12.4 per cent in the last three years, two years and one year, respectively.

Given the decline in the level of interest rates, limited scope for further interest rate cuts and the 11 per cent exposure to equities, the fund may be hard-pressed to maintain the kind of returns it managed so far. But it should be able to generate returns of around 9 per cent over a period of time. The quality of the debt portfolio is good, and there may be limited downside risk in the equity exposure, given the present level of stock prices.

The steady decline in interest rates provided opportunities for trading gains. Declining interest rates lead to higher bond prices and vice-versa. This has helped all debt schemes, and Alliance MIP is no exception. This provided a good perk to the returns, and that explains the 15.4 per cent per annum return since inception.

But with interest rate cuts likely to be limited to another 50 basis points at best, the scope for any notable trading gains may be limited. The fund has also positioned the portfolio towards this prospect with 62.9 per cent in corporate debt paper

Suitability: Alliance MIP is appropriate for investors looking for regular returns. But only investors with some preference for risk ought to go for this fund as it has a sizeable equity exposure, which enhances its risk profile.

Investors may be better off with the growth option and use of a systematic withdrawal plan to meet their regular liquidity needs. This is due to the superior tax efficiency of the option as dividends are now taxable in the hands of investors. But Alliance MIP cannot be the first two or three choices if you are starting a debt portfolio, as quite a few other debt schemes have a good track record without the risks attached to the presence of equity in the portfolio.

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