Monthly Income Plan

Monthly Income Plans, known as MIPs, are debt-oriented hybrid mutual funds that give a fixed return every month to the investor. The ratio of equity investments is considerably low, but is just enough to give you an added advantage to the stability of the debt part of the fund. The returns are given out in the form of dividends, and the frequency of payouts will depend on the fund and the investor – it could be monthly, quarterly, half-yearly or annual.

MIPs, like fixed income funds, invest in instruments such as government securities, commercial paper, treasury bills and certificate of deposits. An MIP has to be distinguished from a Monthly Income Scheme (MIS) offered by banks and post offices, which is a type of term deposit plan that offers you small but steady returns until maturity.

Features of MIP

The following are the main features of a Monthly Income Plan:

  • The plan consists of 15-25% equity stocks and the rest 75-85% is invested in debt funds. This way, you can combine the profitability of stock markets with the stability of debt instruments.
  • MIPs come in growth and income options. Growth option works like an equity fund and does not give you regular income, while the income option gives periodic dividend payouts.
  • You can choose the equity weightage of your MIP. There are 2 main kinds of plans – MIP Aggressive, with up to 30% equity investments, and MIP conservative, with 15% or less equity portion.
  • MIPs give higher returns in the 1-to3-year tenure than traditional savings instruments such as fixed deposits, but the risk is higher due to the presence of the equity component.
  • A Systematic Withdrawal Plan (SWP) can be added to your MIP to make it easier for you to get a fixed income. Under this scheme, you can withdraw a specific amount at regular intervals. This amount can be withdrawn from the principal amount as well, and is not dependent on additional cash availability.
  • Taxation of MIPs is as per the rule governing debt funds. While short-term gains are added to the investor’s income and taxed according to the slab rate, long-term capital gains tax is at the rate of 20% with indexation and 10% without indexation.
  • To save taxes, investors can go in for long-term investment, and start SWP after at least 1 year.

Disadvantages of Monthly Income Plans

Every mutual fund will have one or the other disadvantage. MIPs are subject to the following inadequacies:

  • Dividend payouts are not fixed in nature. This is because of the volatility of the equity segment. Even the returns from the debt portion will differ if there have been interest rate changes in the economy. When the interest rate goes down, the debt segment performs well but with a rise in interest rates, the fund tends to perform badly.
  • Payments from an MIP are dependent on the performance of your fund and the availability of excess cash in the investment portfolio. If the market is volatile then there would be less cash and hence the payouts will be less or negligent. The principal amount of investment is left untouched and used for further re-investments.
  • Dividend payouts, however, have an additional tax that has to be paid by the Asset Management Company (AMC). On an amount less than Rs. 10 lakh, a Dividend Distribution Tax (DDT) of 15% has to be paid, while on amounts higher than Rs. 10 lakh, 10% tax has to be paid by the receiving individuals as well. Dividends are given out after the tax deduction, which will reduce the sum total of your income.
  • Many MIP funds charges an exit load of 1% if the units are redeemed before 12 months of starting them.

MIPs are a good investment option only if your primary goal is to safeguard your money and earn yourself a steady income. Some of the best-rated aggressive MIPs in India are Franklin India MIP, UTI MIS - Advantage Plan, Birla SL MIP II-Wealth 25 and Reliance MIP, while Birla SL Monthly Income, ICICI Prudential Regular Income and SBI Magnum MIP are conservative plans.

Top 5 Monthly Income Plans to Consider for 2021

Here are 5 of the best MIPs you can invest in this year:

  1. Birla Sun Life MIP II – Wealth 25 Plan

The minimum amount of money you will require to invest in Birla Sun Life MIP II – Wealth 25 Plan is Rs.1000. Investing in this fund through SIP will require a sum of Rs.1000 too. To invest in the SIP, investors may provide 6 post-dated cheques. The plan allots 70% to 80% of the funds into money market and debt instruments, while the remaining 20% to 30% is invested in equity and equity-related instruments. The AUM (Assets Under Management) of Birla Sun Life MIP II – Wealth 25 Plan is Rs.2,492 crores.

  1. Franklin India Monthly Income Plan – Plan A

This is a balanced debt-oriented fund that is conservative in nature. In order to invest in this fund, investors will have to put in a minimum of Rs.10,000, and investment via SIPs will require a minimum of Rs.500 per month. In case the plan is redeemed within a year of entry, an exit load of 1% will be applicable. The portfolio of Franklin India Monthly Income Plan – Plan A includes stocks such as the State Bank of India, HDFC Bank and Axis Bank. The AUM (Assets Under Management) of Franklin India Monthly Income Plan – Plan A is Rs.412 crore.

  1. HDFC Monthly Income Plan – LTP

HDFC Monthly Income Plan – LTP is a balanced debt-oriented fund that is aggressive in nature. In order to invest in this fund, investors can put in Rs.5,000, followed by Rs.500. In case the fund is redeemed within a year from the date of entry, an exit load of 1% will be applicable. The portfolio of HDFC Monthly Income Plan – LTP include stocks such as Infosys, L&T, ICICI Bank, and the State Bank of India.

  1. ICICI Prudential Regular Income Fund

ICICI Prudential Regular Income Fund is a balanced debt-oriented plan that is conservative in nature. Majority of the money in this fund is put into debt-oriented securities. ICICI Prudential Regular Income Fund invests in shares of Axis Bank, Larsen and Toubro, Reliance Industries, and Tata Steel. Although this plan does not offer great returns, it is growing in popularity among investors whose risk appetite is low.

  1. ICICI Prudential MIP 25

To invest in the fund, the minimum amount that investors will have to put in is Rs.5,000. The portfolio of ICICI Prudential MIP 25 includes stocks such as HDFC Bank, Motherson Sumi, TVS Motors and Maruti Suzuki.

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