Monthly Income Plans (MIP) in mutual funds – who should invest?

Monthly Income Plans (MIP) in mutual funds–Who should invest?Monthly Income Plans (MIP) in mutual funds – Who should invest?

Monthly income plans (MIP) in mutual funds are like debt mutual funds where it pays fixed income by way of dividends. Monthly income plans are becoming famous year on year.

Features of Monthly Income Plans (MIP)

  1. Fixed income not guaranteed: Thought its primary objective is to provide regular fixed income, there is no guarantee that such plans would provide regular income as the returns would depend on the investment made on debt related instruments and some amount in equity markets.
  2. Fixed income is paid from profits, but not from capital: The NAV may get increased month on month due to growth in investment, however when the dividends are paid, the NAV would come down to that extent. Means, the regular income is paid from your investments only.
  3. Easy Liquidity like any other mutual funds
  4. MIP returns are tax free, but dividends are taxed: MIP’s are paid by way of dividends and they attract 13.74% of dividend distribution tax. It is free in the hands of investors; however the dividend distribution tax is deducted by Mutual Funds Company when they paid dividends.
  5. Returns are ranging 7% to 10%: The MIP returns are ranging between 7% to 10% p.a. in the last 3 years. When interest rates are falling, bond rates would increase and MIP would provide better returns.
  6. Taxation: Like any other mutual funds, short Term capital gains are applicable if MIP's are sold < 1 year. Long term capital gains would be applicable if MIP's are sold > 1 year.
  7. Exit load: Like other mutual funds, if you exit from MIP mutual funds before 1 year, you need to pay 1% exit load.

Types of Monthly Income Plans (MIP)

Like any other mutual funds, MIP’s are available through two options.

  1. Dividend option: Investment thru this option provides dividend’s to be received monthly, quarterly and annually.
  2. Growth option: Investment thru this option provides growth in the investment and all returns would get re-invested and compounded and would get paid at the maturity or during redemption of the mutual fund. However since the fixed income are not paid under this option, you can opt for “Systematic withdrawal plan” under this scheme to get fixed income under this MIP Growth option.

Monthly Income Plan (MIP) Vs Fixed deposits – Which is better?

Thought there are several features which are similar to each other, some of them are unique to each other.

  1. Returns: Returns on fixed deposits are known upfront, whereas the returns on MIP would fluctuate.
  2. Taxation: Income tax on Interest on FD’s would get charged base on the individual tax bracket. However tax on MIP’s, only dividend distribution tax of 13.74% on fixed income needs to be paid.

Monthly Income Plan (MIP) Vs Post Office MIS Scheme – Which is better?

Thought there are several features which are similar to each other, some of them are unique to each other.

  1. Returns: POMS interest rates are 8.5% p.a., whereas the returns on MIP would fluctuate and are ranging between 7% to 10% p.a.
  2. Taxation: Income tax on Interest on POMIS scheme would get charged base on the individual tax bracket. However tax on MIP’s, only dividend distribution tax of 13.74% on fixed income needs to be paid.
  3. Tenure: POMIS scheme tenure is 5 years. For MIP there is no such period.
  4. Penalty for pre-closure: 2% pre-closure charges would get deducted if we close POMIS scheme before 3 years and 1% after 3 years but before 5 years period. Regarding MIP, if you exit before 1 year there is exit load of 1%. If you want to exit after 1 year, there is no exit load.

Best Monthly Income Plan mutual funds to invest in 2013

There are two categories, MIP aggressive and MIP conservative. MIP Aggressive mutual funds invest 15% to 30% in equity markets and provide higher returns. MIP conservative mutual funds invest 0% to 15% in equity markets and provide returns littler lower than MIP aggressive.

Monthly Income Plans (MIP) in mutual funds – Who should invest?

Conclusion: Monthly income plans (MIP) provide monthly/quarterly/annual fixed income and best suitable for investors who want fixed income higher than bank fixed deposits or Post office MIS scheme.

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Suresh
Monthly Income Plans (MIP) in mutual funds

3 comments

  • Deepak

    HI,

    I read the article & I think that you can solve my questions.I m going to retire by next year I want to invest lump sum amount in any SWP which will give me at least Rs. 10-12 K per month. 

     

  • rakesh

    I mean monthly sips will work in mips ???

  • rakesh

    That means to invest in Mips one should have corpus like Fixed deposits or it SIP Amounts can also yield better returns ?? Cann i invest small sips of 3000 in for example birla sunlife weath mip 25??

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