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Monthly Income Plans (MIPs) are designed for pensioners or ultra-traditional investors who are risk-averse. Over 70% to 80% of the MIP corpus goes to debt funds and the remaining in stocks. However, unlike the name suggests, it is not something that delivers a fixed monthly income.

In this article we have covered the following aspects of any MIP:

  1. What are Monthly Income Plans?
  2. Who should buy Monthly Income Plans?
  3. What are the features of Monthly Income Plans?
  4. What is the earning potential of MIPs?
  5. How do you assess MIP risks?
  6. How do you analyze MIP returns?
  7. What are the tax implications of MIPs?

1. What are Monthly Income Plans?

Monthly Income Plans belong to the hybrid mutual fund category, and they are essentially debt-oriented. This means the majority of the portfolio is invested in debt funds or/and money market instruments, which is why MIP is a moderate-risk scheme. Investors can enjoy excellent liquidity while earning regular dividends. However, MIPs are not something that generates a steady and fixed monthly income as the name indicates (like FDs). Like any market-linked investment tool, dividends are paid out based on profits.    

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2. Who should buy Monthly Income Plans?

Willing to enter the equity fund sector, but wary about the risks? Then MIPs are the perfect platform to keep your feet firmly in the safe zone of debt funds while giving you a small exposure to equity benefits. Majority of the MIP investors are retirees, homemakers and those about to retire as per the latest data. Majority of the MIP investors are retired people, homemakers and those about to retire according to the latest data.

Basically, people who want to park their money safe somewhere while getting additional income monthly/quarterly opt for this. It also serves the interest of first-time mutual fund investors as a stepping stone to the market.


3. What are the features of Monthly Income Plans?

a. It delivers more returns as compared to POMIS schemes and fixed deposits in terms of returns.

b. There is no investment limit for Monthly Income Plans.

c. You do not have to pay any entry load (like processing charges).

d. MIP has an exit load, which cannot be more than 1% of the invested amount.

e. There is no lock-in tenure for this scheme.

f. It offers comparatively higher liquidity

g. The fund manager monitors and takes decisions on when to switch to equities or debts and how much.

h. It is generally recommended to invest when the interest rates are high as it results in a drop in NAV

4. What is the Earning Potential of MIPs?

Investors have two ways to earn dividends and growth of wealth.



The AMC pays dividends from the distributable surplus No steady flow of dividends
Dividends will be paid only when the fund is in profit The profits get added to the NAV and let the corpus grow
Regular dividend declaration is not SEBI-mandated Wealth creation with corpus growth

5. How do you assess MIP risks?

Plenty ride on the expertise of the asset manager as the percentage of equity allocation is at his discretion. The fund manager selects the companies (large-cap, mid-cap, small-cap or micro-cap) to put their money in, which helps to manage risks. These funds are moderate-risk bets, and they mostly place their money in debt securities like debentures, public securities, and corporate bonds. For instance, UTI MIP maintains a standard 15%, while HDFC MIP goes up to 25%. Some plans invest more than 30% in equity shares, but it is rare. Do stick to the standard 15-25% equities, if you do not wish to be burned by market highs and lows.

6. How do you analyze MIP returns?

MIPs can generate more returns compared to 100% debt funds, thanks to the equity-presence. They have historically delivered 10-12% returns, which is more than what fixed deposits offer. However, you get dividend payouts at the discretion of the fund company, and they are not guaranteed.

7. What are the Tax Implications of MIPs?

As a debt-oriented fund, MIP is taxed. All rules of short-term capital gains (STCG) and long-term capital gains (LTCG) taxation will apply to MIPs too. For instance, if the investor disposes the units before three years, then the short-term capital gains will be added to his income. These will be taxed as per his income slab. If the units are held for more than three years, then LTCG tax of 20% is applicable.

However, you will be eligible for indexation benefit, and there will be no tax on the dividends in the hands of investors. The fund house levies the dividend distribution tax of 25% before distributing the dividends.

Individuals falling in the higher tax bracket may consider these funds. They may gain tax-efficiency as compared to other traditional havens. Those who fall in the lower tax bracket may choose growth option over dividend option to fetch higher returns and reduce tax liability.

Sometimes, MIPs have served as a means to meet planned and unexpected expenses. In short, investing in MIP is an excellent means to add to your current income in a disciplined manner.  

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