DSP BlackRock Monthly Income Plan: Invest :: Business Line

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A well-timed increase in equity allocations at the start of the year and adroit juggling of the debt portfolio have helped the DSP Blackrock Monthly Income Plan (MIP) deliver healthy double-digit returns in the past one year.

The fund’s 11.8 per cent return in one year makes it the best performing fund among MIPs in the last one year. This easily tops the category return of about 7 per cent. Its three- and five-year returns, at 7.8 and 8 per cent, respectively, also better the benchmark by about two percentage points each. DSP BlackRock MIP has consistently stayed in the top quartile within its category.

This fund is allowed to invest the bulk of its portfolio, up to 75 per cent, in debt securities and up to 25 per cent in equity and related instruments. The fund stands out among the MIPs mainly for its active management, both of the allocations and of individual holdings.

In the run-up to December 2011, for instance, the fund raised its equity exposures to the upper bound, at 24 per cent.

This increased exposure helped returns during the equity market rally, which has taken the Sensex up by nearly 12 per cent so far this year. The fund has been selling into the rally, with equity exposure falling to 17 per cent in its latest August portfolio.

The fund’s debt market exposures too have been churned in a timely manner. Starting with a high exposure to non-convertible debentures in December, the fund has since cut back and enhanced holdings in gilts.

This move has been well-timed to take advantage of the recent rally in gilt prices on the prospect of softer yields.

From a nil exposure, gilts have moved up to 13 per cent of the portfolio.

SAFE DEBT PORTFOLIO

The fund, however, tends to play it quite safe with the debt portfolio. Credit risk is minimised with instruments rated AAA or AA + and a fairly short portfolio maturity of around two years.

While MIP managers tend to manage the equity portion of their portfolio in a relatively passive manner, this fund has resorted to offbeat equity picks with a number of mid-cap stocks.

UTV Software, L&T, Cipla were the top exposures in December, but replaced by HCL Technologies, Grasim and Exide recently. These are likely to deliver good returns to the fund.

The fund’s current equity portfolio tends towards defensives such as FMCG, software and pharma though the portfolio is widely diversified.

While regular dividends, automatic rebalancing of the portfolio and contained risk are the advantages of investing in MIPs, their high expense ratios are a disadvantage. The debt portion in these funds may get charged high expense ratios, compared with pure debt funds.

The expense ratio of this fund is about 2 per cent, compared with about 1.3-5 per cent for the least expensive MIP and 2.25 per cent for the most expensive.