The fact that equity markets are at record highs and investors' portfolios are looking good has already been chronicled; however there exist some investors who believe that they haven't benefited from the surging markets.
The common rhetoric which we have heard at Personalfn is, "the markets are at the 6,200 levels, but my investments still don't look too impressive."
The answer to this might lie in the concept of risk-return trade-off.
The risk-return trade-off works on the premise that any investor who bears a higher risk is rewarded with better returns, i.e. he is compensated for bearing that additional degree of risk.
Investors must take into account this trade-off while evaluating their investments. For example, Monthly Income Plans (MIPs) which conventionally have 15-25 per cent exposure to equities and the balance in debt instruments represent the lower end of the risk-return matrix.
Despite the limited exposure to equities, MIPs have turned in a smart performance over the last few months as can be seen from the table below.
MIPs: Smart performers
| Monthly Income Plans | NAV (Rs) | 1-Wk | 1-Mth | 3-Mth | Incep. |
| Birla MIP II Wealth 25 | 10.65 | 0.33% | 2.57% | 4.89% | 7.13% |
| Pru ICICI Income Multiplier | 10.50 | -0.14% | 1.14% | 4.51% | 5.18% |
| Principal MIP Plus | 10.52 | 0.24% | 1.94% | 3.90% | 4.73% |
| HDFC MIP LTP | 10.94 | 0.10% | 1.74% | 3.77% | 7.33% |
| DSP-ML Saving Plus Agg. | 10.68 | 0.08% | 1.11% | 3.71% | 7.02% |
Top-performing MIPs have clocked growths of 3.71% to 4.89 per cent over a 3-month period which is an impressive performance for the asset class. Investors would remember that not too long ago, quite a few MIPs were either languishing in negative terrain or had modest returns to show for.
Skeptics who feel that this growth rate is not good enough might find performances delivered by the balanced funds segment or the diversified equity funds segment more to their liking.
Top-performing Balanced Funds
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Top-performing Diversified Equity Funds
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Clearly the diversified equity funds segment has proved to be the most remunerative one for its investors. But the comparison made above is an inappropriate one because the three categories, i.e. MIPs, balanced funds and diversified equity funds are offerings with distinct inherent risks and the returns are commensurate with the risk borne.
An investor in diversified equity funds (with a near 100 per cent investment in equities) undertakes significantly higher risks vis-à-vis an MIP investor (15-25 per cent equity exposure) and the same is reflected in the returns as well.
Rank top performing mutual funds
A reversal in fortunes in the equity markets would entail huge losses for investors in diversified equity funds vis-à-vis investors in MIPs who have only a part of their portfolio exposed to equities. Returns in isolation signify very little and can be misleading as well.
Investors must factor in the risks borne by them, if they wish to aptly evaluate the profitability of their investments.