Monthly Income Plans in India: An Easy Guide for Beginners

• Monthly Income Plans (MIPs) are ideal for conservative investors seeking regular income with minimal risk.

• MIPs primarily invest in debt instruments with a small equity component.

• Conservative MIPs have lower equity exposure (up to 15%) and are less volatile.

• Aggressive MIPs allow for slightly higher returns with increased risk due to up to 25% equity allocation.

Investments are a great way to grow your wealth while keeping it secure. There are many options you can choose based on your goals, risk tolerance and other factors. One of these is monthly income plans, MIPs for short. Monthly income plans in India are ideal for low-risk investors looking to secure a stable income stream.

MIPs are one of the many regular income schemes you can rely on for security and stability. They offer better returns than some other options, like fixed deposits. Read on to learn how MIPs work, their types, benefits, and more.

In simple terms, MIP mutual funds refer to a scheme where a majority of the portion is invested in debt, generally up to 80 to 90% and 20 to 10% in equity. Because of this, the returns from MIPs are generally more than some other low-risk, fixed-income options.  

You get dividends based on the fund’s performance. While the commitment is to give a monthly payout, it isn’t guaranteed. So, the payout frequency can be monthly, quarterly, half-yearly, or annually. 

Understanding the various types of monthly income plans in India will enable you to select one that best suits your needs. These plans are generally classified into two categories – conservative and aggressive. 

Here is an overview of both these options:

• Aggressive

In these MIPs, the allocation in equities is slightly higher, up to 25%. Given this, their volatility and risk are higher, but so can the returns.

• Conservative

In this plan, the equity allocation is up to 15%, lower than the aggressive plan. Because of this, they are less volatile and low-risk. However, they may also not perform as well as an aggressive plan.

You can also classify MIP in mutual funds into dividend or growth-oriented funds. Here is what both of these types mean:

• Dividend-oriented

As the name suggests, your returns are given to you in the form of dividends. The distribution happens when there is a surplus/profit from the fund.

• Growth-oriented

In this plan, your earnings are reinvested, and you accrue interest on them. So, you can leverage the power of compounding and accelerate your gains. 

These regular income schemes have several characteristics and benefits that you should know to make an informed decision. Listed below are some of these key factors:

• You can invest as much as you want, as there is no upper cap

• There is no lock-in period, so you have better liquidity and can access funds anytime

• It is low risk since allocation is majorly in debt and less in equities  

• It offers better returns than some other low-risk investments in India because of equity investment

• You don’t need to pay any entry fee or processing charge since it is an open-ended scheme

• The funds are managed by professional fund managers, making them ideal for beginners

To make the most of your investment and ensure that you achieve your goals, carefully choose the schemes you invest in. Here are some key considerations for monthly income plans in India:

• Evaluate your risk tolerance, as MIPs are market-linked options and carry some risk

• Assess your goals and investment period because these schemes are ideal for mid to long-term investment

• Diversify your investment to maximise gains while minimising the risk

• Monitor the fund’s performance to ensure you get the desired results

• Consider the expense to choose the most affordable option, as low charges can lead to better returns

1. Are MIPs guaranteed to pay monthly income?

No, MIP mutual funds are market-linked and, therefore, don’t guarantee fixed income every month. The returns depend on the fund’s performance. However, the returns are generally better than debt funds, as MIPs also include equities.

2. How do MIPs differ from traditional FDs?

The main difference between MIPs and FDs is that the former gives market-linked returns, whereas the latter offers assured returns at a specific rate. Additionally, the dividend from MIPs is tax-free, but the interest from FDs is taxable.

3. Can MIPs be used for retirement income?

Yes, in fact, monthly income plans in India are popular among retirees who are risk-averse but want some exposure to equities. However, it is essential to remember that you should not invest all your funds in one option. Diversifying in different asset classes is important to maximise gains and minimise returns.

4. What is the typical asset allocation in MIPs?

The allocation varies depending on the fund, but generally, 70% to 90% is in debt, and 30% to 10% is in equities. Because of this, the risk is low, but gains are also low compared to some high-risk options.

5. Do MIPs carry any market risk?

Yes, while MIPs are among the low-risk investments in India, they do carry some risk because a portion of the fund is invested in equities. As such, the returns are not guaranteed and depend on the fund’s performance.

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