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 –
 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.
 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.
(Rs. Per Unit)
Monthly Income Plans vs Fixed Deposits/ Post Office Monthly Scheme
|Criteria||Monthly Income Plans||Fixed Deposits||Post Office Monthly Scheme|
|Average Return||10 -12%||7-8%||8%|
|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?
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.
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.
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|
|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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There is also the Senior citizen scheme in Post Office, that gives 8.6% return.