Know about Monthly Income Plans in India

Monthly income plans (MIPs) are a type of mutual fund. They are often considered an alternative to the typically fixed deposits and the Post Office Monthly Income Scheme, but with a monthly payout option.

Monthly Income Plans in India: An Overview 

Monthly income plans are debt-oriented investments that can be considered to be hybrid mutual funds. 

It means that the majority of its portfolio tends to be invested in the money market and debt instruments, making it an investment option with a moderate level of risk.

MIPs invest a small amount of money in various equity and equity-related instruments every month. The fund houses subsequently payout their investors with a steady income regularly. However, this payout amount is not fixed and might vary as per the fund performance. 

As the performance of the mutual funds drives its returns, the sum of money gained through MIPs won't be guaranteed. 

In certain situations, the returns can be negative as well. Hence, as an investor, you must consider your risk profile before putting your money in monthly income plans in India.  

Who must consider investing in monthly income plans in India? 

Monthly income plans in India can be ideal for investors prepared to gain exposure to the equity market without taking any high risk. 

A good number of individuals investing in such plans tend to be homeowners, retired individuals, as well as people close to retirement years. On the whole, investing in such a plan can be a good choice if you want to park your savings and enjoy a regular income. 

If you are planning to invest in a mutual fund for the very first time, you can choose MIPs as your stepping stone in the market.

Difference between a Monthly Income Plan and Fixed Investment Options

The prime difference between the monthly income plan and fixed investment options is that returns of the MIP schemes are wholly dependent on the fund's market performance. Meanwhile, the latter provides assured returns to the investors. 

However, compared to the fixed investment options, MIPs are more tax-efficient as the dividends offered under them are exempted from taxation.

Types of MIPs in India

There are two types of monthly income plans in India, Dividend Based MIP and Growth Based MIP.

1. Dividend Based Monthly Income Plan

   In such schemes, the monthly payouts are given in the form of dividends. These dividends would be tax-free for the investors. However, the dividend sum that the investors get tends to be the earned dividend less than 14% dividend distribution tax.

2. Growth-based Monthly Income Plan

   Under such schemes, the profit made on the capital keeps getting added to it, but the money is not paid out at periodic intervals. Instead, the investors get a lump sum amount, along with the capital, when the units are redeemed.

Major Features of Monthly Income Plans in India

• MIPS can provide better returns in comparison to similar schemes, like fixed deposits and Post Office Monthly Income Scheme
• There is no limitation on the investment made for monthly income plans
• Investors do not have to pay any processing costs or entry load when purchasing such plans
• The exit loads prevalent on MIPs cant go beyond 1% 
• There is no kind of lock-in period involved for MIPs.
• MIPS provides comparatively high liquidity in comparison to similar schemes

How to analyze the returns of monthly income plans?

MIPS tends to generate superior returns as opposed to pure debt funds owing to equity presence. Historically, these plans deliver around % to 12% returns. This rate is relatively superior to the returns offered by fixed deposits. 

Concisely, in India's case of monthly income plans, it is not possible to guarantee dividend payouts. These dividends are given as per the discretions of the relevant fund companies.   

Monthly Income Plans in India: Taxation 

MIPs are taxable in India, much like any other debt-oriented funds. The rules meant for long-term capital gains (LTCG) and short-term capital gains (STCG) are applicable for monthly income plans in India as well. 

For example, if you dispose of your MIP units under three years, STCG shall be added to your income and subsequently be taxed according to your tax bracket. 

Similarly, LTCG tax shall be applicable if the MIP units end up being held beyond three years. Conversely, you must note that you shall be qualified for indexation advantage in this situation and would not have to pay any tax on the sum of dividends. 

It will be the responsibility of the fund houses to pay dividend distribution taxes before providing the dividends to the discerning investors. 

If you fall high in the tax bracket, then investing in MIPS might prove to be a smart decision to gain better tax savings than the traditional havens.

Monthly Income Plans in India

1. Aditya Birla Sun Life Regular Savings Fund

   Among the most popular monthly income plans in India, you can easily invest in this scheme with a minimum investment sum of INR 500. This money can be paid through SIP or in a lump sum. 

   Aditya Birla Sun Life Regular Savings Fund primarily invests in money and debt market instruments to provide regular returns. A small portion of the money is also invested in equities to generate capital appreciation. 

   This MIP is ideal for investors having low to moderate risk appetites and the desire to enjoy regular ROI and good capital appreciation.

2. Baroda Pioneer Conservative Hybrid Fund

   This MIP was launched in 2004, to generate safe and consistent returns for the investors by investing in a variety of money and debt market instruments like treasury bills, government securities, corporate bonds and more. 

   Such funds also help in generating long-term capital growth by investing a specific part of the money in equity and distinguished equity-related securities. 

   Baroda Pioneer Conservative Hybrid Fund is a moderate to high-risk investment option and can be lucrative for people wanting to take part in wealth creation while also enjoying a regular income inflow.

3. DSP Blackrock Regular Savings Fund

   Launched in 2004, this MIP focuses on generating regular returns for investors by investing in quality debt security funds. 

   A small portion of the money is also invested in equity securities under DSP Blackrock Regular Savings Fund to create long-term capital growth. This is among the popular monthly income plans in India that has a moderate to high-risk profile.

4. HDFC Hybrid Debt Fund

   Started in 2003, HDFC Hybrid Debt Fund allows you to make a minimum lump-sum investment of INR.5000 or INR. 500 through SIP. 

   This scheme largely invests in distinguished debt instruments, including government securities and corporate bonds of major companies. HDFC Hybrid Debt Fund aims at offering regular returns on investment, along with the advantage of long-term capital growth. 

   Such MIPs are suited for investors having a moderate risk appetite and a desire to enjoy regular income inflow, along with long-term capital growth.

5. ICICI Prudential MIP 25

   Another of the highly popular monthly income plans in India, this scheme emphasizes generating regular income by making investments mainly in money and debt market instruments. 

   A specific sum of money is also invested in equity and equity-related instruments for long-term capital appreciation. 

   ICICI Prudential MIP 25 can be considered to be a moderate to high investment option. It can be good for you if you want to enjoy the benefit of capital appreciation, along with consistent ROI.

   

6. ICICI Prudential Monthly Income Plan

   This scheme predominantly invests in debt instruments and is focused on generating regular returns, along with the advantage of capital appreciation. 

   ICICI Prudential Monthly Income Plan can be a good fit for investors with a low-risk appetite who desire to enjoy a regular income inflow.

7. Invesco India Regular Savings Fund

   Launched in 2010, this scheme generates regular investors by investing in a portfolio of fixed income securities comprising equity and equity-related instruments, as well as Gold ETF. 

   Invesco India Regular Savings Fund has moderately high risks and would be a good choice for investors who want to enjoy regular ROI.

8. Reliance Hybrid Bond Fund

   Investors would require a minimum investment of INR 5000 in a lump sum or INR 500 through SIP to invest in this scheme. Reliance Hybrid Bond Fund majorly invests in debt and money market instruments to provide regular and safe returns to the investors. 

   A part of the money is also invested in equities to enable capital appreciation. Reliance Hybrid Bond Fund can be well suited for investors having a moderate to low risk appetite and desire to enjoy both consistent ROI and capital appreciation.