Product Crack1 min read . Updated: 29 Apr 2010, 09:55 PM IST
Name of new fund offer (NFO)
Religare Monthly Income Plan Plus
What is it about?
It is a monthly income plan (MIP) with a difference. In addition to investing in a cluster of debt and equity scrips—like most other MIPs—it also aims to invest 10-35% in gold exchange-traded funds (ETFs). Like most other MIPs, it aims, but does not guarantee, to distribute regular income. While funds that invest in a mix of equity, debt and gold instruments are not new, this is India’s first MIP that invests in gold. It will continue to invest predominantly (at least 65% of its portfolio at all times) in debt papers.
Although all MIPs invest significantly in debt papers, what differentiates one from the other, apart from the quality of management, is their allocation to equity. The higher it allocates to equity, the riskier it gets. In falling equity markets, MIPs with higher equity allocation, too, fall. Here’s where this new fund comes in. As gold is a good hedge to inflation, during rising inflation—which is already a problem—the fund can increase its allocation to gold and aim to earn steady income; it’s equity investments can be zero in falling equity markets.
Although it is an MIP, don’t expect it to deliver returns every month as MIPs have been known to skip dividends in falling equity markets. How regular will the NFO’s dividend payouts turn out to be, considering it aims to invest in gold ETFs to reduce volatility, remains to be seen.
MONEY MATTERS TAKE
An MIP’s biggest challenge is consistency across markets and timely dividend payouts. Volatile equity markets have forced even the best in business to skip dividends at times. However, with its investments in gold ETFs, the NFO aims to make a difference. Investors who want to experiment with a new fund may like this diversified fund.