Investing in mutual funds can be an effective way to reach your financial goals. Whether you are saving for retirement, college or a big purchase, mutual funds offer a variety of advantages that may make them the right choice for you. With so many options available, it can be difficult to know where to start.
Moreover, in today’s economy, it is important to have a steady stream of income that can help you through difficult times. This is why many investors are turning to monthly income plans (MIPs) in India as a way to generate regular returns from their investments. MIPs offer investors the potential for both growth and income, making them an attractive option for those seeking to diversify their portfolios.
What are monthly income plans?
Monthly income plans are mutual funds that invest in both equity and debt instruments. Generally, MIPs consist of 15-25% equity stocks and 75-85% debt funds. This allocation allows investors to benefit from the potential returns of stock markets while also enjoying the stability of debt investments.
MIPs come in two main varieties: growth options, which are similar to equity funds and do not provide regular income, and income options, which give periodic dividend payouts. Investors can also choose the equity weightage of their MIP, with “aggressive” plans having up to 30% equity investments, and “conservative” plans having 15% or less.
What are the benefits of investing in monthly income plans?
Returns: MIPs can provide higher returns than traditional savings instruments such as fixed deposits. This is due to the presence of the equity component, which gives investors the potential to benefit from stock market growth over time.
Taxation: The taxation of MIPs follows the rules for debt funds. Short-term gains are treated as income and taxed according to the investor's tax slab, while long-term capital gains are subject to either a 20% rate with indexation or 10% without indexation.
Systematic Withdrawal Plan: Investors can opt for a systematic withdrawal plan (SWP), which allows them to withdraw a specific amount at regular intervals. This amount can be withdrawn from the principal amount and is not dependent on additional cash availability.
Flexibility: MIPs offer investors flexibility when it comes to choosing their investment options. Investors can choose their own level of risk and return, as well as the duration of their investments.
Top monthly income plans to invest in 2023
| Name of the plan | 5-year returns (%) |
| ICICI Prudential Monthly Income Plan | 9.1 |
| ICICI Prudential MIP 25 | 7.7 |
| Invesco India Regular Savings Fund | 6.9 |
| Baroda Pioneer Conservative Hybrid Fund | 6.7 |
| Aditya Birla Sun Life Regular Savings Fund | 5.5 |
| HDFC Hybrid Debt Fund | 5.06 |
| DSP Blackrock Regular Savings Fund | 4.5 |
| UTI Regular Savings Fund | 4 |
Note: The above data has been compiled from Policybazaar.
Are there any drawbacks of investing in MIPs?
MIPs are subject to volatility due to the presence of the equity component. Even the returns from the debt portion will differ if there have been interest rate changes in the economy. When the interest rates go down, the debt segment performs well but with a rise in interest rates, the fund tends to perform badly.
Secondly, dividend payouts are not fixed in nature, as they depend on the performance of the 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.
Additionally, many MIP funds charge an exit load of 1% if the units are redeemed before 12 months of starting them.
Investing in monthly income plans in India can be a great way to generate steady returns from your investments. MIPs offer investors the potential for both growth and income, allowing them to benefit from stock market growth while maintaining the stability of debt investments.
While there are some drawbacks to investing in MIPs these can easily be managed with proper planning and research. So if you’re looking for a steady source of income, then investing in MIPs could be the right option for you.
