How to Earn Monthly Income with Mutual Funds? All You Need to Know

• Monthly Income Plan mutual funds primarily invest in debt instruments with limited equity exposure.

• This makes them ideal for conservative investors seeking stable returns with minimal risk.

• MIPs offer dividend plans (regular payouts if the fund makes a profit) and growth plans (earnings are reinvested to grow via compounding).

• While MIPs may offer monthly payouts based on profits, a Systematic Withdrawal Plan (SWP) guarantees a fixed amount withdrawn each month by redeeming fund units.

For low-risk or risk-averse investors, monthly income plan mutual funds can be a great option. These are funds that primarily invest in low-risk securities and can provide a stable income stream. 

With strategic planning, this mutual fund income option can help you grow your wealth securely. It can give better returns than some other fixed-income options for investors with a low-risk tolerance. 

Learn more about monthly income plan mutual funds, their benefits, taxation and more.

MIP funds are a type of mutual fund for low-risk investors who want secure and steady income growth. In this option, the asset allocation is majorly in low-risk avenues, generally up to 80%. The remaining is invested in equities. 

This allocation allows the fund to capitalise on market movement while keeping the risk low.

Based on the fund’s performance, you earn returns in the form of dividends. For instance, if you have 5,000 units and the dividend declared is ₹2 per unit, you get ₹10,000. 

You can choose to withdraw your earnings at regular intervals. In this case, it would be a dividend plan. You can also reinvest the earnings and allow them to grow. In this case, it would be a growth-oriented fund. 

However, it is important to remember that the payout will only be done if the fund makes a profit. As such, you may not get regular income.

Another monthly payout strategy that you can consider with mutual funds is a Systematic Withdrawal Plan (SWP). As the name suggests, you systematically withdraw from your investment. It works similarly to a systematic investment plan (SIP), where you invest some amount every month into a fund.

However, in SWP, you withdraw a certain amount instead of putting it in. You set up an instruction to receive a certain sum every month. The units equivalent to that amount will be redeemed every month. This way, you set up a consistent income stream. 

It is important to remember that in this strategy, your investment value will fluctuate as you are withdrawing. If the NAV is higher than the one at the time of investment, you will likely still see a gain. If it is lower, your investment will likely decrease, too. 

If you want a consistent income, a systematic withdrawal plan may be a better choice since you get a fixed amount every month. However, it is a withdrawal, so your investment value will decrease over time. But if fixed income is not your goal, you can go for monthly income plan mutual funds.

To understand who should invest in monthly income plan mutual funds, you need to understand the features and benefits these funds offer. Here are some you should know:

• It is a low-risk option as equity exposure is low, and the allocation is mainly in debt.

• The liquidity of MIPs is better than some other low-risk options, ensuring you have access to funds whenever needed.

• MIP mutual fund returns are better than some other fixed-income options.

• There is no cap on the amount you can invest, and you don’t need to pay any entry load or processing charge as it is an open-ended scheme.

Given these features and benefits, monthly income plan mutual funds are ideal for you if you want to reduce your exposure to risk. These funds can also be a great option for retirees and investors looking for supplemental income.

Armed with this information, you can choose your ideal mutual fund income option. Make sure that you diversify your investment in different asset classes to minimise the risk of market fluctuations. 

You should also consider the taxation to lower your tax liability, if possible, and maximise your gains. You can consult a financial expert to ensure that your investment strategy aligns with your goals.

1. How are monthly payouts generated in MIP funds?

The MIP mutual fund returns depend on the fund’s performance. If it is good, you can access your gains through the dividends distributed by the company. It is important to note that while MIP funds commit to giving a monthly payout, it isn’t guaranteed, as the dividends are only distributed if there is profit.

2. What’s the difference between dividend and SWP?

Dividends are what you get when the mutual fund makes a profit. Here, the amount you receive is not consistent or fixed. In a systematic withdrawal plan (SWP), you set up an instruction to receive a certain amount every month. The units equivalent to that amount will be redeemed every month. As such, the amount you receive is fixed and consistent.

3. Can MIPs provide inflation-beating returns?

The returns from MIP mutual funds depend on the fund’s performance, which is influenced by market fluctuations. So, you may or may not get inflation-beating returns. That said, these funds generally do offer better returns than some other fixed-income options.

4. Are MIP mutual funds risk-free?

No, monthly income plan mutual funds are not entirely free of risk. Since they invest a certain portion in equities, they are volatile and influenced by market fluctuations. However, the investment in equities is low, and so is the risk, making it ideal for conservative investors.

5. How do I select the best MIP fund for my goals?

There are several factors that you need to consider to choose the best fund as per your goals. Some of these are:

• Investment horizon and goal

• Previous performance

• Consistency in returns

• Allocation of funds

• Your risk tolerance and risk level of the fund

Return to Goal