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ICICI Prudential MIP 25: One of the best Mutual Fund Monthly Income Plans

ICICI Prudential Mutual Fund - Hybrid Debt Oriented Funds

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Hybrid Debt Oriented Funds article in Advisorkhoj - ICICI Prudential MIP 25: One of the best Mutual Fund Monthly Income Plans
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Mutual Fund Monthly Income Plans (MIPs) are one of the best investment options for investors with moderate risk tolerance. Monthly Income Plans are conservative hybrid mutual funds which invest 70 – 75% of their portfolio assets in fixed income securities and the balance in equities. The stability of fixed income investments is supplemented by kicker from the equity investments, resulting in good returns at fairly low risk levels. ICICI Prudential Monthly Income Plan 25 is one of the top ranked MIPs over the last 5 years. The fund has given nearly 10.3% compounded annual returns since its inception. It has consistently outperformed the conservative hybrid fund category across various time periods. The chart below shows the trailing annualized returns of the ICICI Prudential MIP 25 compared to the conservative hybrid funds category over 1, 3, 5 and 10 year periods.


Hybrid Debt Oriented Funds - The trailing annualized returns of the ICICI Prudential MIP 25 compared to the conservative hybrid funds category

Source: Advisorkhoj Research


ICICI Prudential MIP 25, monthly dividend option has an excellent track record of monthly dividend payments. In the last 2 years, the fund has not missed paying monthly dividends even in a single month. If we look at annual returns of this fund over the last 10 years, we will see why ICICI Prudential MIP 25 is an excellent investment choice for investors with low to moderate risk tolerance.


Hybrid Debt Oriented Funds - The negative returns of the ICICI Prudential MIP 25 in last 10 years

Source: Advisorkhoj Research


The fund gave negative returns only once over the last 10 years, in 2008 when equity markets tanked globally. In 2011, which was another bear market year, the return of the fund was marginally negative, more on the flat side. Even this year on an YTD basis, while the frontline equity market indices (e.g. Sensex, Nifty) has corrected more than 10%, the fund has given nearly 7% returns. Thus we can see that MIPs provide downside protection to investors in volatile markets and give good returns in bull markets due to the equity kicker. However, once the bull market returned ICICI Prudential MIP 25 gave very strong returns to investor in 2014. CRISIL rates ICICI Prudential MIP 25 as a good performer (Rank 2). Morningstar has a 5 star rating for this fund.

Fund Overview of ICICI Prudential MIP 25

The fund was launched in March 2004 and has nearly 1,284 crores of assets under management as of end of October 2015. It has an expense ratio of 2.07%. Rajat Chandak is the fund manager of ICICI Prudential MIP 25. This fund is suited for investors with low to moderate risk tolerance, looking for both income and capital appreciation. Investors, who prefer dividends, can opt for monthly, quarterly or half yearly dividend options.

Portfolio of ICICI Prudential MIP 25

74% of the fund portfolio is invested in fixed income securities, 2% in cash equivalents and 23% in equities. The credit quality of the debt portfolio is excellent. The average maturity of the debt portfolio is 6.7 years, which makes the fund moderately sensitive to interest rate movements. However, in the current interest rate environment good returns can be expected from bonds over a sufficiently long time horizon. The equity portfolio has a bias towards cyclical sectors, which can give good returns once the capex cycle revives in the economy.


Hybrid Debt Oriented Funds - Asset allocation and Top 5 Holdings of ICICI Prudential MIP 25

Source: Advisorkhoj Research

Risk and Return ICICI Prudential MIP 25

While in terms of volatility measures, the standard deviation of returns of ICICI Prudential MIP 25 is quite low at 5.6% on an absolute basis, it is still a little higher than the average volatility of conservative hybrid funds. However, in terms of risk adjusted returns, as measured by Sharpe ratio, the fund clearly outperforms average conservative hybrid funds by a big margin.

The chart below shows the growth of 1 lac lump sum investment in the ICICI Prudential MIP 25 (Growth Option) over the last 10 years. 1 lac invested in the fund 10 years back would have grown to over 2.5 lacs based on November 26 2015 NAV.


Hybrid Debt Oriented Funds -  Growth of Rs. 1 lakh investment in ICICI Prudential MIP 25

The chart below shows the returns over the last 10 years of 3,000 invested monthly through Systematic Investment Plan (SIP) route in the ICICI Prudential MIP 25 (Growth Option). The SIP date has been assumed to be first working day of the month. The chart below shows the SIP returns of the fund. NAVs as on November 26 2015.


Hybrid Debt Oriented Funds -  Growth of monthly SIP of Rs. 3,000 started 10 years back in ICICI Prudential MIP 25

The chart above shows that a monthly SIP of 3,000, started 10 years back in the ICICI Prudential MIP 25 (Growth Option) would have grown to nearly 6.2 lacs by November 26 2015, while the investor would have invested in total only about 3.6 lacs.

Monthly Dividend Track Record of ICICI Prudential MIP 25

The table below shows the monthly dividend payout track record of ICICI Prudential MIP 25 (Monthly Dividend Option). We can see that, the fund did not miss out on paying monthly dividends. This is a good fund for investors looking for monthly income. However, investors should note that, like all mutual fund dividends, there is no certainty of dividend payment. Dividend payout track record can help investors get sense of the expected monthly dividends in the near term.


Hybrid Debt Oriented Funds -  Monthly Dividend Track Record of ICICI Prudential MIP 25

In the last two years the investor would have received a dividend of around 14,360 on 1 lac investment. This implies an annual dividend yield of around 7.2%. Investors should note that in mutual fund Monthly Income Plans, dividends are tax free in the hands of the investors. At the same time, the value of the investors units would have increased from 1 lac to 1.1 lacs. A fund like ICICI Prudential MIP 25 is ideal for earning a regular income, as well as for capital appreciation.

Conclusion

ICICI Prudential MIP 25 has completed more than a decade of strong performance. It has created both income and capital appreciation for long term investors. Investors looking for regular dividend payments can also invest in the dividend option of the fund. Investors can consider investing in the scheme through the systematic investment plan (SIP) or lump sum mode with a long time horizon. Investors should consult with their financial advisors, if ICICI Prudential MIP 25 is suitable for their investment portfolio.

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Dwaipayan Bose

An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development

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