Canara Robeco MIP: Invest

Fresh investments through the systematic investment route can be considered in units of Canara Robeco Monthly Income Plan (MIP). Canara Robeco MIP is a debt-oriented balanced fund with an option to invest up to 25 per cent of its funds in equity instruments.

It is among the top performing funds in the MIP category over three- and five-year periods with annualised returns of 12.8 per cent and 10.6 per cent respectively. This performance is well above the category average of 9.25 per cent and 7 per cent respectively over the above-mentioned periods.

Suitability : MIPs typically generate superior returns compared with pure fixed income funds during equity market rallies. This makes them a better investment option to beat inflation.

While the poor equity market performance has marginally dented the performance of MIPs, funds such as Canara Robeco MIP provide an option to buy select equity blue chips at their lows, even as the debt portion still generates positive returns.

Canara Robeco MIP has generated negative returns only 7.5 per cent of the time over the last five years, on a yearly rolling-return basis. The fund's five-year annualised return of 13 per cent is in fact superior to pure equity category returns of 7.2 per cent, thanks to its debt rally.

Investors, though, should brace themselves for short-term blips in the fund. In 2008, for instance, the fund lost 11.5 percent as a result of the equity market meltdown. Taking the systematic investment route would allow investors to ride the equity market volatility better.

Performance and portfolio : The fund's one-year return at 3.24 per cent, although seemingly low, places it among the top funds in the MIP category. The fund cut its exposure to equity from April 2010 thus limiting the damage from decline in equities. As of August 2011, the equity portfolio as a proportion of total portfolio was 16.6 per cent, with large-caps dominating.

The fund, which has been focussing on short-term instruments to limit interest rate risk, has slightly increased its duration (a measure of interest rate risk) over the three months prior to August. This has led to drop in performance over a three-month period following surprise/ more than expected rate hikes by the RBI.

However, in August, it once again reduced the average duration to 0.56 years. The yield-to-maturity of the portfolio currently stands at 9.5 per cent. With the base rates of most banks above the 10-per cent mark, the yields of the fund's investment universe such as commercial paper and certificate of deposits can be expected to remain at elevated levels.

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