Top 10 Monthly Income Plan (MIP) Mutual Funds to invest in India

Top 10 Monthly Income Plan (MIP) Mutual Funds to investTop 10 Monthly Income Plan (MIP) Mutual Funds to invest in India


If you want to invest a lump sum and expecting to get higher regular income from mutual funds, you can opt for Monthly Income Plan (MIP) Mutual funds in India. MIP Mutual Funds invests some portion in equity and majority in debt related instruments. MIP Mutual funds provide higher returns compared to Bank Fixed Deposits. Some of the top MIP Funds have provided 16% annualized returns too. What are these Monthly Income Plan (MIP) Mutual Funds? Where do they invest? Which are the top 10 Monthly Income Plan (MIP) Mutual funds to invest in India?

What are Monthly Income Plan (MIP) Mutual Funds?


Monthly Income Plans (MIP) mutual funds are debt funds which invests 5% to 30% in equity and balance in debt related instruments. These MIP Plans provide regular dividend payouts either by monthly, quarterly or half yearly.

Also Read: Best International / Global Mutual Funds to invest in India

Here are some of the key features of MIP mutual funds.

1) If you want to invest lump sum investment, the MIP mutual fund is one of the best options.

2) They would provide regular payouts in the form of dividend. Though not guaranteed, they offer the highest returns compared to bank FD’s.

3) MIP returns are volatile as it invests part of the investment in equity.

4) Under MIP, Post tax returns are high as these are classified under debt schemes and returns are taxed with or without indexation method.

5) Like any other mutual fund, MIP’s are available in growth and dividend option.

How does Dividend and Growth Option work in MIP Mutual Funds?


If you invest in MIP mutual funds through dividend option, you would get a regular dividend either by monthly, quarterly or half yearly. These dividends are paid only from your capital appreciation and your capital is not touched. If you want regular income, you should opt for Dividend option.

If you invest in MIP mutual funds through growth option, you would not get any regular payouts, however, your capital would get appreciated till you redeem or sell your MF units.  If you do not want regular income, you should opt for Growth option.

How Monthly Income Plan (MIP) Mutual Funds are taxed?


MIP Mutual funds are taxed like any other debt mutual funds. MIP Mutual funds are taxed based on the growth or dividend option chosen by you.

1) If you have opted for Dividend Option, your mutual fund house need to pay Dividend Distribution Tax (DDT) to Govt before they pay dividend to you. Means, these are tax free in the hands of investors.

2) If you have opted for Growth Option, when you redeem or sell your mutual fund units, the capital gains  are taxed like any other debt fund schemes. If these are sold within 3 years, short term capital gains applicable and you need to club this income with your income and pay income tax based on your income tax slab. If these are sold / redeemed after 3 years, long term capital gains are applicable and the returns are taxed at 10% without indexation and 20% with indexation.

Can we opt for Systematic Withdrawal Plan (SWP) in MIP Mutual funds?


One of the main drawbacks of MIP in mutual funds is, they do not provide guaranteed regular income. In case the returns are lower, these schemes do not declare dividends. Hence, one would get doubt whether there are any alternatives in such case. Systematic Withdrawal Plan (SWP) could answer this question. You can opt for Growth Option in MIP Mutual funds and do Systematic Withdrawal Plan (SWP).

Let me explain with an example. You can invest Rs 5 Lakhs in MIP Mutual funds with growth option. Assume that you are getting 10% returns per annum and 0.83% per month i.e. Rs 4,166 per month. Now if you opt for dividend option, you may not get Rs 4,166 every month as returns could be volatile. In such case, opt for SWP.

Dividend Option Vs Systematic Withdrawal Plan (SWP) – Which is better in MIP Mutual funds?


Here is what dividend option offers.

1) Only capital appreciation is paid out to you. In case there is no capital appreciation, no dividend is paid.

2) Tax on Dividends are paid by MF AMC directly of 12.5%. The amount received in the hands of the investor is tax free.

3) Whether to pay out dividend along with frequency is decided by mutual fund house depending on the returns.

Here is what the SWP option offer.

1) Periodic payout is fixed by the investor. If you want Rs 5,000 or Rs 10,000 per month, you decide.

2) If you have capital appreciation, such payout would come from your returns, otherwise, it would be withdrawn from the capital.

3) An investor needs to pay short term capital gain or long term capital gain depending on the start date of the payout. If you opt for payout after  3 years, long term capital gains can be paid.  

Top 10 Monthly Income Plan (MIP) Mutual Funds to invest in India


1) Aggressive MIP mutual funds invest 15% to 30% in equity and balance in debt funds. These are good for investors who want to take a relatively higher risk and expect higher returns.

2) Conservative MIP mutual funds invest up to 20% in equity and balance in debt funds. These are good for investors who want to take a relatively lower risk in debt funds.

List of Top 10 Monthly Income Plan - MIP Mutual Funds to invest

Also Read: Scripbox Vs Fundsindia – Which is the best Mutual Fund Platform to invest?

Limiting factors of MIP in Mutual funds


1) Banks offer guaranteed income. However, MIP doe doesn't offer fixed returns. However, this drawback can be removed by opting for the SWP in MIP mutual funds.

2) MIP returns are volatile and may or may not pay dividend sometime at all.

3) MIP mutual funds carry some factor of risk as it invests up to 30% in equity.

Conclusion: Monthly Income Plan (MIP) Mutual funds provide regular payouts and they are tax efficient. If you are worried about not getting regular payouts you can opt for the SWP in MIP Mutual funds. This way you can invest lumpsum in your mutual funds and get returns of over 10% per annum. If you observe, some of the funds gave as high as 16% returns in mutual funds which is double the interest rates offered by Bank FD’s

Happy investing in MIP Mutual Funds!!!

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Suresh

Top 10 Monthly Income Plan (MIP) Mutual Funds to invest in India

11 comments

  • sitarama

    Thanks for an excellent article; comprehensive and informative.

  • N Balu

    Thanks for the excellent article on MIP. I have a question on LTCG tax for partial lump sum withdrawal after 3years. Please let me give you some numbers: I invested 24 lacs in June 2012. It has grown to 40 lacs today. Suppose I withdraw today 24 lacs. There is no capital gain, no tax, I think- Please confirm. When I withdraw the balance 16 lacs in 2020 let us say, what tax do I have to pay ?Please advise tax-free withdrawal schedule according to today’s rule. Many thanks. Your answers are always clear.

  • Sekar

    Suresh garu,

    I want to invest about two lakhs in a scheme for a short period of 3-6 months before I require the money for house. kindly suggest a good scheme along with tax implications. Thanks sir.

  • Meenu

    Hi,

    I have Rs. 20 lakhs in FD’s which I would like to now invest in mutual funds.
    Time horizon – 15-18 years, low – moderate risk, expected returns – 10-15%. What are the best options?
    How should I diversify this amount? Should I go for MIP’s growth option, which ones?

    Please advise. Thanks in advance Suresh!

  • Harsh Patel

    Hi Sureshji,
    Really this is very important article, cant resist to share it with my friend on social media.
    Thanks and keep doing good work.

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