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How to invest in monthly income plans?

Posted by skshaheen on June 3rd, 2019

If you are looking for an investment option that pays you returns every month, then monthly income plans are your best bet. Commonly known as MIPs, they fall under the category of debt mutual fund schemes and are mostly preferred by investors who seek steady and timely income flow.

Generally, monthly income plans invest about 80% of their part in debt instruments, and the rest is invested in equities, thus essentially rendering the fund towards debt. Allowing it serves as an advantage to its buyers as they provide consistent returns and it also has the ability to deliver a potentially large sum of returns.


Bigger, better returns - As the investment is also made in equities, the profits are also better as compared to other counterparts. For example, MIP returns range in the range of 11-14% while fixed deposits or MIS for that matter yield somewhere between 8 to 11%.

No Limit on investment: - There is no limit on the amount of investment that can be made into a MIP. There is no entry charge; however, an exit charge is applicable, which is to the tune of around 1%.

No Locking Period: - MIPs do not have the constraint of lock-in period and hence are greater liquid in nature. This also relieves the investor the burden of constantly watching over his investment and can make switching investments easy.

Proper risk - Return balance: - MIP is a hybrid fund and has a unique structure of investment which guarantees a moderate return of investment at all times by substantially reducing the risks attached with it.

Types of Monthly Income Plans:-There are two broad categories of Monthly Investment Plans. Dividend based and growth based.

Dividend based: - As the name suggests in this type of MIPS, the monthly payment is rolled out in the form of dividends. What’s more, these dividends earned by the investor are completely tax-free. However, a 14% tax is levied on the dividend amount earned prior to paying it to the investor.

Growth based: - To put into simple terms, growth based MIP is that type of MIP in which the profit made on the invested capital is further added to the capital, and the cumulative amount is then reinvested. This process goes on and on until the investor decides to quit. The returns are not paid to the investor after fixed intervals but are paid upon redeeming the units.

The best time to increase in a MIP is when the overall interest rates are high as a rise in interest causes the whole net asset value (NAV) to increase. The monthly dividends which are declared do not necessarily showcase the total learnings bur is just a part of it. The surplus left is again used to make future investments.

Monthly income plans are essentially between the high risk of equity funds and the low risk of debt funds, thus falling in a safe zone of their own. In short, MIPS prove to be a good investment option for those who seek steady income flow with minimal associated risk.

Also See: Monthly Income, Income Plans, Investment Option, Growth Based, Monthly, Investment, Income

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