Monthly Income Plans (MIPs) are debt oriented mutual funds, which invest a small part of the fund (15-25 %) in equities. MIPs offers regular income in the form of periodic (monthly, quarterly, half-yearly) dividend payouts.

Investors can invest in MIPs with two options –

[1] Monthly Income Plans with Growth Option: Here, the money is not paid out to you in forms of dividends; instead it keeps growing in mutual funds. Investor will get accumulated amount with all the profits at the time of redeeming the fund.

[2] Monthly Income Plans with Dividend Option: – Suitable for Monthly Tax Free Income

Dividend Option is typically availablewith monthly dividend or quarterly dividend payout option. Mutual funds with each option is separately listed on the stock exchange.This option is suitable for investors seeking periodic income in the form of dividend. The distribution of dividend by AMC is decided based on net surplus. Practically what this means is that if the NAV of the fund keeps rising by X% (let’s say 0.7% per month), then the fund will declare a monthly dividend and maintain a consistent NAV.

Example – Dividends will be payable to those unit holders whose names appear in the register of unit holders on the Record Date.

Record Date NAV 

(Rs. Per Unit)

Dividend 

(Rs/unit)

28-Jan-16 11.663 0.0600
26-Feb-16 11.240 0.0541
28-Mar-16 11.554 0.0556
28-Apr-16 11.693 0.0563
27-May-16 11.731 0.0565
28-Jun-16 11.738 0.0565
28-Jul-16 12.265 0.0591
26-Aug-16 12.350 0.0595
28-Sep-16 12.561 0.0605
28-Oct-16 12.597 0.0607

Monthly Income Plans vs Fixed Deposits/ Post Office Monthly Scheme

Criteria Monthly Income Plans Fixed Deposits Post Office Monthly Scheme
Risk Low No No
Average Return 10 -12% 7-8% 8%
Complexity Moderate Easy Easy
Assured Monthly Income No Yes Yes
Max Limit No Limit No Limit 4.5 lacs for Single & 9 lacs for joint holders
Penalty for Early Withdrawal 1% exit Load 1% less interest will be paid 2% before 3 years 

1% after 3 years

Tax on Returns Before 1 year – as per your tax slab 

After 1 year – 10% or 20 % with indexation

As per tax slab As per tax slab

Risks Involved in Monthly Income Plans?

[1]No guarantee of Regular Income

The biggest myth about Monthly income plans is that they provide guaranteed monthly income, which is not true. While the aim of MIPs is to regularly declare dividends, it might happen at times, that they do not declare any dividends because of bad performance. There is no regulation or compulsion on the fund house to declare regular dividends.

[2]Dividends can be declared only from the profits and not from Capital

In MIPs, dividend can be paid only from surplus and not from capital investment. What it actually means is that dividends can be declared from earned income only. If your initial NAV was Rs 10 and after a month the NAV rose to Rs 11.6, the dividend can only be given out of this 1.6 and not from the initial capital value.

[3]Taxation of Monthly Income Plans

MIPs are debt oriented mutual fund schemes and thus the tax treatment will be same as debt funds.All the dividends received from the MIP’s would be tax-free in hands of investors.

Read more on Taxation of Mutual Fund Schemes

Top Monthly Income Plans in India

MIP – Returns (in %) – as on Nov 10, 2016

Mutual Fund Scheme 6 mth 1 yr 3 yr 5 yr
Sensex 6.8 6.9 10.3 9.9
Birla SL MIP II-Wealth 25 (G) 13.1 17.7 16.9 13.6
ICICI Prudential MIP 25 (G) 9.5 12.1 14.1 11.9
HDFC MIP – LTP (G) 12 14.5 15.1 11.7
Reliance MIP (G) 8.1 10.8 13.7 11.5
Franklin India MIP (G) 7.9 11.6 13.6 11.5
IDFC Monthly Income Plan – RP (G) 8.7 11.5 12.7 11.5
Kotak Monthly Income Plan – Regular (G) 10.4 14.5 13.7 11.4
UTI MIS – Advantage Plan (G) 7.2 11 13.5 11.3
DSP BlackRock MIP Fund (G) 11.4 13.3 12.5 11.2
HSBC MIP – Savings Plan (G) 8.6 10.9 12.5 11

* Returns over 1 year are Annualized

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