The latest monthly Dow Jones Newswires poll of international fund managers shows investors are being recommended to stay overweight in stocks and underweight in bonds next year.

Fund managers say interest rates have bottomed out globally and income from bonds are going to be subdued in 2004. Stocks, on the other hand, are going to benefit from the economic upturn, though returns may not be as spectacular as in 2003. So, it is important to choose the right sectors and shares.

India is among the preferred markets worldwide, evidenced by the $7.5-billion inflow of foreign funds this year. Yet Indians still don’t see stocks as a vehicle for savings.

N. K. Sharma, managing director of IL&FS Mutual Fund, has an explanation. Government-subsidised risk-free investment vehicles like the Varishtha Pension Yojana and the post-office monthly income scheme give people a wrong impression.

“It is partly because of these products that people have yet to come to terms with the fact that income from bonds and other guaranteed products isn’t going to be attractive, and investors must diversify their assets to boost returns while keeping risks under control,” he says.

It is this need to diversify the investment options that has led to the emergence of hybrid products that spread risks between stocks and bonds. An aggressive investor looking to spread risks across assets classes would typically invest in a ‘balanced fund’, or a mutual fund scheme that invests half of its corpus in shares and the other half in bonds.

But, for the common man in India, even a 50-50 asset-mix could be daunting. Hence, to match the limited appetite for risks, a series of monthly income plans (MIPs) — a marginal equity product — were launched over the last few months.

The wide acceptance of the product that typically invests 15-25 per cent of its corpus in stocks and the rest in bonds is evidenced by HDFC Mutual Fund raising Rs 930 crore in the initial public offering of its MIP.

Milind Barve, CEO of HDFC Mutual Fund, says: “An MIP is the first step towards equity. People are willing to look at equity now but only if offered in an asset-mix vastly skewed in favour of bonds.”

MIPs derive the name from a product that used to guarantee a certain monthly income — in most cases post-dated cheques for a year or more were issued up front. But gone are those days when even mutual fund schemes were like fixed-income products. Neither are returns guaranteed nor do investors expect a monthly payout.

“About 50 per cent of the amount raised in the IPO was from people who did not want a monthly dividend. They chose the ‘growth’ option, under which gains are reflected in the NAV (net asset value) and not distributed periodically,” Barve said.

That’s true for all fund houses. Yet about a third of the investors who bought HDFC’s scheme went for for the ‘monthly-dividend’ option and about 20 per cent, for ‘quarterly- dividend’. The periodic dividend plans are, however, not tax efficient. The income from dividend under these plans is taxable.

“However, what is interesting is that more people opted for the (MIP) scheme that proposes to invest up to 25 per cent in stocks — it grossed close to Rs 540 crore,” Barve added.

So who are the people investing in MIPs? Fund managers say MIPs are being increasingly viewed as a vehicle for savings. People seeking a double-digit growth with minimum risk and 100 per cent liquidity, are investing in MIPs.

If you haven’t joined the bandwagon yet, you still could. A couple of IPOs are closing this week, and more are in the pipeline. And you could always join the existing schemes — they are open-ended, which means you could enter and exit at your will.