With interest rates moving southwards and consequently, returns on debtfunds falling, fund managers see MIPs as an ideal investment alternative forgenerating superior returns with around 15 per cent of the corpus investedin equities. ``Even for conservative investors, MIPs make sense since he canenhance his returns by taking only 15 per cent exposure to equities. I thinkeven the most risk-averse investor will need to have some equity exposure asinterest rates fall,'' said the chief investment officer of a mutual fund.

Mutual fund officials also do not rule out a shift from their existing debtfunds to MIPs. ``A further sub-division is likely to emerge among investors- the less conservative now goes to balanced funds, while the moreconservative will invest in MIPs,'' pointed out an analyst.

``Almost all the funds have 70-75 per cent of their corpus in debt funds. Asreturns fall, funds will have to provide investors with an alternativeproduct which generates higher returns and is as safe as a debt fund,''added the CEO of a mutual fund.

The recent cut of 100 basis points (one per cent) in interest rates on PPFand post-office schemes is expected to speed up the launch of MIPs. Whilethere are some debt funds with monthly dividend payouts, these funds are 100per cent debt funds and hence, do not invest in equities. On the other hand,with UTI now assuring returns only for the first year in its five-year MIPs,private players feel that interest in UTI's product may gradually begin towane.

``With the convenience of open-end MIPs, lower equity exposure and yetbetter returns, the new MIPs should start attracting money soon,'' says themarketing head of a mutual fund. The corpus of Alliance Monthly Income hasalready grown by 350 per cent from Rs 63 crore (during the initial offer) toRs 284 crore. The fund has generated a return of 9.37 per cent in the last 3months in the growth option while returns in the monthly and quarterlyoptions are 8.98 and 9.13 per cent, respectively.

Although UTI's MIPs have a higher cap of 25-30 per cent on investments inequities, the equity component has only resulted in erosion of corpus in thepast. ``UTI has, so far, not been able to take advantage of the equitycomponent in MIPs.

With the coupon of its MIP linked to interest rates, the latest scheme isnow offering an annualised return of only 10.75 per cent,'' says an analyst.``If other MIPs are able to pay a return of one or 1.25 per cent per month ,the annualised return will be easily in the band of 13 to 15.5 per cent,''he adds.

However, there are some technical and administrative problems associatedwith MIPs. ``There are some glitches when it comes to monthly despatch ofdividends. It is better if dividend can be directly credited to aninvestor's account rather than sending post-dated cheques,'' said themarketing head of a mutual fund.