Every month your salary is credited. You pay for expenses and save some of them. But what happens when that income stops? Or is your primary income enough for emergencies? The immediate response may be a term plan, but they pay a lump sum to the nominee at maturity or upon death. But one must look past them and invest in mutual funds via Monthly Income Plan. Monthly income from mutual funds provides regular cash inflow to investors for an extended period even after retirement. Let us see how they work.
A Monthly Income Plan (MIP) is a mutual fund scheme that invests primarily in a mix of debt (80%) and equity (20%) securities. MIP mutual funds invest money in low-risk securities like preference shares, dividend stocks, and fixed-income securities. The main purpose of a MIP is to provide a steady flow of regular income to investors in the form of dividends or interest payments.
A monthly income scheme in mutual funds is an ideal investment for investors without a regular income source, senior citizens, and retired people. But even if you have a steady income can invest in MIP to create an alternate cash inflow.
There are two types of Monthly Income Plans that one can invest in:
These monthly income schemes pay monthly dividends to the investors. However, the fund house has to pay taxes on dividends, so the amount investors receive is dividend minus dividend distribution tax. These are ideal for investors looking for regular pay-outs.
These MIPs do not make regular payments to the investors. Instead, the fund house adds all profits to the capital. Investors receive their share of capital and profits when they redeem their fund units. Growth-based MIPs are best for investors looking to create wealth over the long term.
The following list of features and benefits make Monthly Income Plans an attractive investment:
MIP mutual fund monthly returns are generally higher than returns from other investments like fixed and recurring deposits. Since these schemes also invest in equity, they generate higher returns compared to pure debt funds. You can easily get returns in the range of 11% to 15%.
Unlike many other investments, Monthly Income Plans do not have a limit on the maximum amount that you can invest. Also, you can choose to pay the premium in a lump sum or at regular intervals (monthly, quarterly, half-yearly, or annually). Higher the investment amount, higher the monthly income from mutual funds.
Keeping your investments till maturity is the best way to earn maximum returns. But it is much better to be able to liquidate your investments in case you need immediate cash. For that matter, MIPs do not have a lock-in period so that you can withdraw your investment at will.
You do not have to pay any processing or entry fee while investing in a Monthly Income Plan. In case you withdraw your investment, the exit fee is not more than 1%. So, you just pay the premium and earn a stable monthly income.
MIPs are a convenient investment for passive investors because there is no need to time your investments and keep track of funds’ performance.
Mutual Fund Monthly Income Plan Terms and Conditions
A Monthly Income Plan’s terms vary depending on the insurer. Here are some of the most common ones:
The minimum age to enter a MIP is 18 years, but some insurance providers have minimum age set to 0 years. The maximum age to get a MIP range from 50 to 65 years.
You can easily get a MIP for 60 to 80 years.
Premium payment tenure is generally between 5 to 15 years.
Policy tenure ranges from 10 to 30 years.
Things to Keep in Mind Before Investing in Mutual Fund Monthly Income Plan
Before you go ahead and invest in MIP mutual funds, there are some things you should note:
Investors only receive dividends if the fund makes profits. Also, investors receive only a part of their share in dividends because AMCs keep the rest for future payments in case of negative performance.
If you want to build a corpus over time, you can opt for growth option. Any profit would be added to the NAV of mutual funds instead of being distributed as dividend.
Income from MIP is taxable under short-term and long-term laws for capital gains. If you redeem units before three years, you pay short-term gains tax in your bracket. Long-term gains tax applies on units’ redemption after three years.
On the other hand, dividends are not taxable for investors because the fund house already pays dividend distribution tax.
Monthly Income Plans provide monthly income from mutual funds, which makes them great for investors looking for a stable source of income. MIPs are particularly a life-saver for senior citizens and retirees as they get to invest in mutual funds with monthly returns giving a cash inflow to meet their expenses in old age.
MIPs are also a perfect monthly income scheme in mutual funds to leave behind a legacy for your family. Upon death, nominee family members continue to receive monthly income from mutual funds till the term expires.
If you plan to invest your money completely online, check out Moneyfy by Tata Capital. Moneyfy is a one-stop platform for you to invest in mutual funds, FDs, insurance plans, and pension schemes. Visit the Moneyfy website, register, and start investing today.
Click the “Allow” button to receive notifications
We're constantly crafting offers and deals for you. Get delivered straight to your device through website notifications.
All you have to do is click on “Allow”.
Now keep a track on your favourite fund
Go to the watchlist page to remove a fund from the list.
No funds are added to watchlist
Add your favourate funds to watchlist to keep them handy
No funds are added to portfolio
Add your favourate funds to portfolio to keep them handy
Contact Us 
16 September 2022
5 mins read
Twitter
Facebook
Previous Post
