RELIANCE MIP

Fund Manager View


Globally, the monetary policy reversal has begun, with Reserve Bank of Australia becoming second central bank to raise the key policy rate after Israel. Taking cues from global developments, RBI raised SLR in the policy meeting. Robust IIP numbers, rising food inflation, anaemic credit growth, appreciating rupee were the other key highlights of the month. In the quarterly monetary policy review, RBI left the key policy rates unchanged (Repo Rate: 4.75%, Reverse Repo Rate: 3.25%, CRR: 5.00%). However, RBI increased the statutory liquidity ratio (SLR) to former level of 25% from 24%, giving clear indication that the monetary policy reversal has already began as it announced the closure of some of the unconventional liquidity support measures provided earlier. WPI and IIP numbers continue to show an upward trend. After remaining in negative zone for three consecutive months, WPI inflation rate grew at 0.51% in September and stood at 1.51% for week ending October17. For last couple of months, food prices have been driving up the inflation rate on account of erratic monsoon. Similar concerns are reflected in Consumer price index (CPI) inflation for industrial workers (with higher weightage of food). CPI-IW continues to be in doubledigit (Aug’09: 11.7%) for third month in row. On currency front, the rupee appreciated sharply by 4% against US dollar in October (after marginally depreciating in September). The appreciation was mainly driven by dollar weakness and foreign inflows on back of economic turnaround. Indian industrial production (IIP) continued to grow robustly for third month in row. It grew at
10.4% in August driven mainly by favourable base effect. Broad-based recovery across the sectors suggests that the economic activities have certainly picked up. On a cumulative basis, IIP growth during April-August was up 5.8% as against 4.8% in same period last year. Credit offtake continued to post dismal performance, with credit growth coming down to 10.8% by Oct 9 as against 13% in Sept, 14.5% in Aug and 15% in July. This was primarily due to base effect and still low non-food credit offtake. However, this has been to a large extent made up by more inflows from other domestic sources (in form of public issues and private placements) and external sources (like FDI, ECBs, GDR, ADRs). Corporate bonds witnessed a lack-luster month with longer end yields moving in a band of 10-15 bps. 10 year AAA was range-bound and moved in band of 8.75%-8.85%. Good support was Reliance Monthly Income Plan (An open ended fund. Monthly Income is not assured and is subject to availability of distributable surplus) witnessed in 2 & 3 year bucket on account of comfortable liquidity. Yields in 2 & 3 year bucket were quoted around 6.90%-7% and 7.80%-7.95% respectively throughout the month. The liquidity conditions continued to be comfortable with the average LAF balances above Rs.1,02,500 crore during the month. The overnight call rates hovered in the range of 2.00% to 4.10% levels during the month. The CD levels were range-bound, with CDs trading in the range of 3.25%-5.60% as against the previous month’s level of 3.00%-6.25%.

Outlook

In coming months, we expect G-secs yields to be range-bound. The market will take cues from RBI policy reversal, GDP and IIP numbers, inflation numbers, announcement related to Government borrowing and actions from global central banks. G-Sec market will take further cues from various events like auction outcomes, credit-deposit growth data and fiscal measures to fight drought conditions. In Q4 FY10, the yields might come under pressure on expectations of RBI raising the policy rates. Going forward, the corporate bond yields are likely to follow G-Sec movement and corporate bond issuance.


About Monthly Income Plan Category􀂉


Hybrid Funds seek to benefit by investing in both worlds of fixed income and equity
instruments.

􀂉 MIPs are hybrid investment avenues that invest a minor portion of their portfolio (around 15 per cent-30 per cent) in equities and the balance in debt and money market instruments (i.e.bonds, certificates, G Secs etc).

􀂉 The asset allocation pattern is designed in such a way that there is a cap of 10%-30% on the equity exposure in the portfolio which during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.
􀂉 MIPs provide income to investors, but the periodicity depends upon the option chosen(Monthly/Quarterly) and the distributable surplus available in the fund. Growth Option provides income in the form of capital gains/appreciation. Case for Investment in the Fund

􀂉 With the current levels of market volatility, MIPs can be a good option considering their exposure to debt instruments. This helps in maintaining a comparatively low-risk portfolio and generates regular and stable returns. Stability, rather than quick and high returns, is usually the priority for a typical MIP investor.

􀂉 The equity exposure in the portfolio during a bear market phase helps in minimizing risk because of limited downside seen during bad times and also aims to generate above average returns in a good equity market phase. Therefore, the equity component provides MIPs with just the edge it needs to outperform conventional debt funds.

Investor Profile􀂉

Investors who are conservative in their investment approach but still want to earn marginally better returns than a debt-only portfolio then MIP is definitely a fund category to be considered.

Portfolio Analysis and Strategy

Debt Portfolio Analysis

􀂉 Emphasis is more on accrual-based returns than on active trading. MIP portfolio reflects an optimum blend of both fixed and floating rate instruments comprising of Certificate of Deposits to take care of liquidity needs and plain vanilla bond specially to take care of yield enhancement, Government Securities enhance the credit quality and shall enable in benefiting from the bond market play.


Equity Portfolio Analysis

􀂉 Though investment into equity and equity linked securities forms a minor part (maximum 20%) of the portfolio, right timing and selection of stocks has been able to generate the alpha returns, thus resulting in the growth of capital.

􀂉 From January 2008 till date, financial markets have witnessed its peak of volatility due to various global and domestic factors. Both, Nifty and Sensex has seen its highs and lows. During this period, the equity exposure in Reliance MIP has been roughly between 10%-20%, depending upon the market opportunities.

􀂉 During the above mentioned period, the fund had taken equity exposure across all market caps in various sectors like Banking, Auto, Finance, Petroleum Products, Software etc.

􀂉 However, the entry and exit to and from particular stock or sector has been done according tothe market timing and opportunities in a particular sector/company.


Fund Strategy

􀂉 Reliance Monthly Income Fund seeks to generate moderate level of returns for its investors by taking advantage of almost every opportunity available in the fixed income market space.

􀂉 An active duration management strategy is followed along with a close monitoring of the portfolio on a regular basis. The fund is suitable for investors with 1.5 – 3 years investment horizon and a low to moderate appetite for risk.

􀂉 We will have a bottom up approach of stock selection in our equity portfolio consisting of a mix of mid cap and large cap stocks. The equity investment philosophy will tend to be more aggressive with the idea of generating an alpha to the portfolio.

1] Point to Point ReturnsNAV Performance report as on 31/10/2009
Compound Annualized
1 Year 3 Years 5 Years Since Inception
Reliance MIP - Growth 33.88 12.58 13.42 11.96
Crisil MIP Blended Index 18.84 7.35 8.52 6.92
*Past Performance may or may not be sustained in the future.
Compounded annualized returns of Growth Option. (Inception Date: 13th Jan 2004)
Calculations assume that all payouts during the period have been reinvested in the units of the
scheme at the then prevailing NAV.

2] Quartile Analysis
Quartile Analysis of the "Hybrid Monthly Income" which consists of 39 MIP schemes was done for
the 1 month, 6 month, 1 year, 3 year and 5 year period as on 12.11.09. The peer group consists’ of 39 schemes uptil 6 months time period 37 schemes uptil 3 year tenure and 36 schemes for 5 year tenure.RMIP has found a place in 1st quartile across all the above mentioned tenors. Reliance MIP has also been rated as a Five Star Fund by Value Research Online. Source: www.valueresearchonline.com


Product Features

Investment Objective:

The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.

Choice of Plans/Option

􀂉 Growth Plan
􀂉 Dividend Plan
􀂃 Monthly Dividend Plan (Payout & Reinvestment)
􀂃 Quarterly Dividend Plan (Payout & Reinvestment

Minimum Application Amount
For Resident and Non Resident Investors
􀂉 In Monthly Dividend Plan: 25,000 *
􀂉 In Quarterly Dividend Plan: Rs. 10,000*
􀂉 In Growth Plan: Rs.10,000 *
*Any purchases thereafter can be made in multiples of Re.1. The minimum amount is specified
above.

Portfolio Features as on 31.10.09

􀂉 Weighted Average Maturity: 2.21 years
􀂉 Weighted Average Yield: 5.40 % p.a


Scheme Details

Date of Inception: 13th Jan 2004
􀂉 Fund Size : Rs.1414.48 crore (as on 31.10.09)

Load Structure􀂉

Entry Load: Nil


In terms of SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009, no entry load will be charged by the Scheme to the investor effective August 1, 2009. Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investors' assessment of various factors including the service rendered by the distributor

􀂉 Exit load: 1% if the units are redeemed/switched out on or before completion of 1year from the date of allotment of units. There shall be no exit load after completion 1year from the date of allotment of units.

Source: Reliance Mutual Fund