BAJAJ BROKING
March 21, 2025
13 mins read
For someone looking for a mutual fund, there are a variety of options to choose from. You simply need to choose the one that aligns with your needs, financial goals, and planning. A Monthly Income Plan or MIP is also a type of mutual fund. As the name suggests, the general objective of such funds is to offer you a regular source of income. MIPs are hybrid funds, offering a mix of equity as well as debt instruments.
Curious to know more about Monthly Income Plans? Well, then you're at the right place. Read on as we explore MIPs, their types, features, benefits, potential investors, and much more in detail. This ensures from here on, you make a better and more informed decision when it comes to Monthly Income Plans.
Before we go any further and get into details, let's start by understanding the basics first. What is a Monthly Income Plan? As mentioned, a Monthly Income Plan is nothing but a popular type of mutual fund. It is considered suitable for individuals looking to create regular income sources with little to moderate risks involved.
Now let's understand the types of these Monthly Income Plans. MIPs are generally of two types and the division is based on their equity exposure. Let's have a look at them
Conservative MIPs
Conservative Monthly Income Plans are those where up to 15% of your portfolio is into equities or some kind of equity-related instrument. These are known for their stability and are considered to be comparatively less volatile. However, you should also understand that this might lower your potential for returns, too.
Aggressive MIPs
Aggressive Monthly Income Plans, on the other hand, are plans where your equity-related portfolio investment exceeds 25%. Also, these are considered to be comparatively more volatile and risky. However, this might reflect better returns too.
Now that you know the basics of the Mutual Funds Monthly Income Plan, let's move forward. Here are some of the features of MIPs:
Asset Allocation
The asset allocation in these MIPs may vary as they are a mix of different funds. However, generally, a major portion of around seventy to eighty per cent is directed to debt instruments like debentures, bonds, etc. The rest is allocated to equity-related instruments.
Regular Payouts
One of the prominent features of MIPs is that they allow you to earn regular income. However, it is important to understand this isn't guaranteed as dividends are announced only in case of surplus. The payout also might differ based on the conditions of the market, the performance of the funds, etc.
Risks are Lowered
Another prominent feature of Monthly Income Plans is related to their risk profile, which is on the lower side. Thus, making it suitable for individuals looking for low to medium-risk investment instruments.
Now, let's explore deeper and try to understand how these Monthly Income Plans work. Consider having a look.
How are monthly payouts managed in MIPs?
In MIPs, you may choose from any of two options: growth option and dividend option. In the case of a growth option, your returns or payouts on your initial investment are reinvested again to make better profits. Next comes the dividend option. Though known for regular payouts, there is much more to the dividend option. Let's understand.
The dividend payouts are only distributed when the fund manages to accumulate a certain surplus. Therefore, payout distribution might happen monthly, quarterly, bi-annually, or annually. In fact, in case of underperformance of funds, there might be no dividend payouts. Simply, the frequency of these monthly payouts is not guaranteed and can vary based on a variety of factors.
How can systematic withdrawal plans (SWPs) enhance monthly income?
Now, let's talk about SWPs or Systematic Withdrawal Plans. These can simply be understood as an alternative to creating a regular income stream using your mutual fund investments.
Let's see how. An SWP makes you eligible to make regular withdrawals from your mutual funds, the withdrawn amount can then be automatically credited to your bank account, helping you with income generation. Also, you may choose the withdrawal amount and its frequency as per your needs and financial plans.
Let's understand this with an example. Say, Suresh invested ₹10 lakhs in a mutual funds investment. Now, to fix a steady income, he chooses an SWP withdrawal of ₹5,000 on every 5th of the month. Now, based on your Net Assets Value, you can calculate the redeemable mutual funds to match your withdrawal needs.
Redeemable units= Withdrawal/ NAV
Let's say, in this case, the net assets value for the first month is ₹50/unit. This means you might need to redeem 100 units of your funds to comply with a monthly set target of ₹5,000.
Not to forget, NAV keeps on changing, and thus, the redeemable units need to be calculated fresh based on a new NAV every time.
Investing in a Monthly Income Plan can help you earn a variety of benefits. Wondering what are they? Well, let's help you understand some compelling advantages of investing in these MIPs.
Payouts are Regular
One of the prominent benefits of Monthly Income Plans is that they offer regular payouts. Therefore, you have a steady source of income similar to your salary.
Risk is Reduced
Since MIPs are a mix of equity and debt instruments, they help you create a diversified and well-rounded portfolio. This ultimately helps spread and reduce the risks.
Tax Implications
For individuals falling in higher tax brackets, MIPs can be a tax-friendly option. Even in dividend payouts, there is a limit on payable tax.
Since you read the advantages of MIPs, it is equally important to understand their drawbacks. Understanding the pros and cons can help you make better comparisons, and then make an informed choice.
Returns are Volatile
MIPs are a mix of equities and debt instruments. The equity part here is subject to market volatility, which may impact your fund’s performance.
Dividends aren't Guaranteed
Though MIPs are popularly known for their regular payouts, the dividend income isn't guaranteed. It may fluctuate as per market conditions and sometimes be skipped too in case of underperformance of funds.
Tax Liability
Further, your overall returns of these MIPs are also returned because of the tax liability on both long and short-term capital gains.
Liquidity is Limited
Mutual funds units might not always be that liquid, especially amidst fluctuating conditions.
Risks are not Eliminated
Though MIPs are popularly looked at as low-risk investments, it is important to understand that they still exist and are not completely risk-free.
If you've read until here, you already know that there are some tax implications associated with these Monthly Income Plans. What are those? Consider having a quick look at the pointers mentioned below for better understanding.
Since most of the investment in MIPs is directed towards debt-related instruments, they are looked at and taxed similarly to debt-oriented funds.
The holding period of these instruments determines the capital gains tax on these Monthly Income Plans. For instance, if your mutual fund's units are held for a short period and are sold within just 24 months of their purchase, then it is considered short-term gains. These short-term gains are then taxed at the slab rate of an individual. Investments held for more than 2 years and then sold are looked at as long-term gains. These long-term gains are then taxed at the rate of 12.5% with no indexation perks.
When it comes to Monthly Income Plans, people often wonder: who should invest? Who are suitable candidates? Well, if you're also someone struggling with questions like this, then consider reading this list of ideal individuals to invest in MIPs.
1st time Mutual Funds Investors
Investors who are just entering the market and are looking for low-risk options might consider investing in MIPs.
Individuals with Lower Risk-Appetite
Next are individuals with financial goals like market exposure, portfolio diversification, steady income, and more, but are not individuals with high-risk appetites. Meaning you can do it all but with fewer risks and more perks.
Individuals Wanting Higher Returns and Steady Income
Investors looking to enhance their income but have budget constraints might consider investing in Monthly Income Plans.
Investing in MIP is simple. All you need to do is choose a trustworthy online portal. Most fund houses make buying MIP online straightforward through a well-illustrated portal. You also have the option of choosing an Asset Management Company, AMC. Go to their website/ app if you want to invest without any intermediaries involved. The third option is investing in a PIM through an online broker. Go to the website/ mobile app and choose the fund that you wish to opt for.
Note: Before you make a decision, make sure to check out the fee/commission that they are charging.
Typically, Monthly Income Plans offer comparatively good returns. The reason behind the same is simple. They are just debt funds, but there is equity exposure involved, too. Generally, it is evaluated that they offer a return ranging between 10% to 12%. In addition to that, you also have to consider the dividend payouts. Not to forget, they are subject to market conditions, accumulated surplus, and other factors.
Now that we have talked so much about the Monthly Income Plans, you might see them as a good investment opportunity. However, before you consider investing in them, make sure you understand the mutual funds. Understanding them, and aligning them with your investment objectives, financial goals, and budget is quite important. Here are some effective tips that can further help you pick the best Mutual Funds Monthly Income Plan.
Be Clear of Your Financial Goals
The very first step is to be clear about your financial goals. Have a clear set of objectives and plans. See for yourself if you're willing to enhance your monthly income or if you want long-term growth or short-term growth, and choose accordingly.
Understanding Your Risk-Appetite is Crucial
Now, one of the common elements of all mutual funds is that they carry risks. However, the risk may carry from one fund to another. Thus, to make sure you choose the best funds, make sure to choose the one that aligns with your risk-taking capabilities. For instance, for individuals willing to take higher risks, you may consider choosing equity funds and enjoy better returns. Alternatively, if you don't want to take bigger risks and maintain a low-risk profile, you may choose debt funds.
Don't Miss Out on Diversification Opportunities
Now, when it comes to mutual funds and choosing the best ones, don't forget to diversify your portfolio. Make sure your investment risks and returns are well-balanced. Invest in different sectors, schemes, assets, and more to build a well-rounded portfolio that enhances your returns and reduces your risks at the same time.
Cross-check the Distribution Policies
When choosing the best funds for yourself, make sure to cross-check their distribution policies. Mutual funds dividends are now known as distribution. Therefore, make sure to see if these distribution policies set regular payments or if they have special clauses related to payment skips and more.
Be Observant of the Fund’s Performance
One of the most crucial things to do before picking any kind of fund is to gauge its history. Make sure to check how it has performed in the past years. Though history isn't a guarantee of future returns or potential, you can still roughly be able to estimate the returns.
Don't Forget the Expenses Ratio
While picking the best funds for yourself, don't forget to check their expense ratio. Remember, a lower expense ratio is considered equivalent to better returns.
Looking to invest in a Monthly Income Plan? I am wondering if there is a best time to do that. Well, there are a variety of factors that can help you invest in these MIPs at the right time. Consider having a look.
Assessing market conditions
Consider investing in periods when the market conditions and sentiment are favourable. The positive sentiment can help you lower the risks and enhance the profits.
To better understand market conditions, make sure to consider factors like stock prices and the sentiment of the investors and identify the right time to invest.
Aligning with financial goals
Make sure to align your investment with your investment goals. Consider factors like risk appetite and financial strategies, and then choose a plan that aligns with the same.
Meeting specific income objectives
Investors starting to invest at the month’s beginning are often seen as disciplined investors. Make sure to maintain consistency and contribute on time.
You may consider using your surplus funds for further growth and wealth creation.
You can also use these funds to create a regular and steady income source.
Make sure to consider these factors carefully and then follow a planned approach. This way you can rightly time your investments. Not only will this help you with timely contributions, but it can also impact your financial returns in the long term.
Here are some of the risks involved with the Monthly Income Plans.
Volatility of the Market
Though these are considered low-risk investments, there is still some risk involved, and it isn't completely eliminated. Market volatility can take a toll on your risk exposure and overall investments.
Fluctuating Interest Rates
As mentioned, debt-oriented funds are quite in focus in MIPs. Any fluctuations in interest rates can impact their performance.
Default Woes
There isn't any guarantee that companies issuing these MIPs won't default, meaning you may lose your hard-earned money.
Burden of Inflation
Though these funds offer returns, there isn't any guarantee they are enough to outpace inflation.
Looking for top Monthly Income Mutual Funds in India. Well, consider having a look at the list below.
ICICI Pru PSU Equity Fund
Quant Value Fund
Kotak Gold Fund
SBI Gold Fund
Quant Infrastructure Fund
Nippon India Gold Savings Ltd.
Before you make a final decision to invest in these Monthly Income Plans, make sure you consider the following factors carefully.
Understanding your investment goals
Always cross-check if your chosen MIPs align with your investment goals. Be clear if you want lower risk, regular income, growth opportunities, or anything else, and proceed accordingly.
Assessing your risk tolerance
Never undermine the importance of your risk tolerance. See what MIPs match with your risk profile and go with your investment goals.
Reviewing the payout structure
You may also consider factors like payment structure, frequency, and more to choose a suitable MIP for yourself. Also, see if the variables of payment are fixed or subject to change.
Checking the historical performance
Always, consider analysing the historical performance of the assets. It may not be a guarantee of future potential but it can help you evaluate returns and make a calculated decision.
Evaluating market conditions
Also, consider factors like market fluctuations, global trends, interest rates, and more while understanding the performance of your MIPs and ultimately, their returns.
Understanding exit loads and redemption fees
Don't forget to cross-check the exit loads. Make sure to see if there are redemption fees on units redeemed before a set holding time. Being aware of such charges is important to carefully plan your investment strategy.
Monthly Income Plans (MIPs) are a smart investment choice for those seeking regular income with relatively low risk. They offer better returns than traditional fixed deposits while maintaining liquidity and flexibility. With no upper investment limit and minimal exit loads, MIPs suit investors who are looking for stability and prefer low-risk options.
However, since returns may fluctuate based on market performance, as an investor, you should assess your risk appetite before investing. Overall, MIPs can help you strike a balance between steady income, accessibility, and capital preservation, making them a viable financial option. Choose wisely.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Monthly Income Plans (MIPs) are ideal for risk-averse investors, offering flexibility with no investment cap, liquidity, and lower risk. They provide assured monthly returns, often outperforming fixed deposits. Being open-ended, MIPs have minimal exit loads and invest in low-risk securities like dividend stocks and fixed-income instruments, ensuring stable earnings.
The payouts in an MIP depend on the plan option that you choose. In the case of Dividend MIP, the payouts can be received periodically which could be monthly, quarterly, or annually. On the other hand, in the case of Growth MIP, the returns are generally reinvested, which is then reflected in the NAV.
Monthly Income Plans are a type of debt mutual fund, thus they are liable for taxation. The tax they attract depends on the holding period. For example, when held for less than 3 years, the gains are categorised as short-term capital gains (STCG). You will be taxed as per the income slab you fall in. In case you are liquidating the MIP after 3 years, then long-term capital gains (LTCG) will be taxed at 20%
A Monthly Income Plan typically offers better returns than a Fixed Deposit (FD) by investing in low-risk securities, while FDs provide fixed interest. MIPs offer liquidity with minimal exit loads, whereas FDs have lock-in periods. However, MIPs carry market risks, whereas FDs guarantee stable, risk-free returns over time.
Just like any other investment, careful planning should be done keeping in mind your financial goals. Though MIPs are considered safe, these are market-dependent investment options, and so the returns can fluctuate. Therefore, invest as per your risk appetite. MIPs can also be tax-liable, so be careful when you choose a pay-out option.
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