Monthly Income Plan or MIP refers to the type of mutual fund in India that provides regular income on monthly basis. As the name suggest, this mutual fund helps you to get monthly income by preserving capital and providing interest amount as income. The fund mostly invest in debt instruments to preserve the capital and small portion of amount is allocated to equities as well to help your investment grow. It is important to note that not all Monthly Income Plan in mutual fund will provide a guaranteed. During times of bull market, the fund might provide you regular stream of income but during bear market, it may stop the payments for few months depending on market conditions.
Let us understand more about Monthly Income Plan in detail.
What is Monthly Income Plan (MIP)?
- Monthly Income Plan or MIP is a type of mutual fund that provides you regular payments on monthly basis
- The fund usually invest in debt instruments and can belong to Debt Mutual Funds or Conservative Mutual Funds
- Major portion of assets are allocated to debt instruments to preserve your capital and provide interest income on regular basis
- Small portion of assets are also allocated to equities that provide dividends and also helps your money to grow
- Monthly Income Plan in Mutual Funds helps the retirees to have monthly income to cover their living expenses
- At times of bull market (increasing market), the income can be derived from interest on debt instruments and dividends from equities
- Where as at times of bear market (decreasing market), the monthly income can be stopped for few months to preserve your capital
- In this way, one should not completely rely on the Monthly Income Plan (MIP) for regular income from mutual funds, where as it can be a good alternatives to other Monthly Income Plans such as Post Office Monthly Income Scheme, Senior Citizen Saving Scheme, etc.
ALSO READ: Retirement Planning Calculator in Excel
How Monthly Income Plan Works?
The working of Monthly Income Plan (MIP) is quite simple:
- The fund manager allocated to the MIP mutual fund select the debt instruments and the equities to invest the assets in
- Debt instruments are responsible to preserve the capital of the investor and provide decent interest income in return
- Equities are responsible to help the money grow and provide dividends whenever possible
- It is important to note that a company does not regularly provide dividends during bear markets, and when interest rate decreases, it might impact the monthly income to be received by investor
- Usually retirees should be investing in such mutual fund with low risk due to high exposure in debt instruments and to get monthly income to cover their living expenses
Love Reading Books? Here are some of the Best Books you can Read: (WITH LINKS)
Monthly Income Plan vs Systematic Withdrawal Plan
Similar to Monthly Income Plan, we have Systematic Withdrawal Plan that allows you to withdraw the mutual fund units systematically every month that will help you to cover your living expenses.
Below are some differences between MIP and SWP
| Monthly Income Plan (MIP) | Systematic Withdrawal Plan (SWP) |
|---|---|
| Mostly Invest in Debt Mutual Funds to preserve the capital of investor and provide interest income based on fund performance | Investor can invest in any mutual fund (Equity or Debt) and decides the number of mutual fund units to withdraw on regular basis |
| Investor have to invest lump sum amount to get monthly income | Invests lump sum amount and decide the amount to be withdrawn regularly |
| Not flexible in terms of regular income | Flexible in terms of regular income |
| Tries to preserve the capital of investor | Investor is responsible to preserve the capital. If more units are withdrawn compared to returns, the corpus in mutual fund will drain quickly |
| Income is not guaranteed during bear markets | Income is guaranteed in bear market as well but the corpus might get over with time due to more withdrawals |
SWP for Monthly Income Video
Watch more Videos on YouTube Channel
Benefits of Monthly Income Plan
Below are some of the benefits of Monthly Income Plan in mutual fund:
- Interest Income: Due to the exposure of your investment to debt instruments, you receive interest income from these debt products on regular basis from Monthly Income Plan mutual funds
- Dividend Income: MIP mutual fund also allocates some portion to equities that are known to provide dividends on regular basis, which becomes part of your monthly income. The allocation can be 20% in equities to preserve your capital and remaining 80% to debt instruments
- Protection of Capital: Since majority of the assets are allocated to debt instruments, your invested capital is protected from market fluctuations
Taxation on Monthly Income Plan
Monthly Income Plan Mutual Funds are taxed similar to Debt mutual Funds, since the allocation to equities in this fund is below 65% of the total assets.
There are two types of capital gains when investing in Debt Funds:
- Short Term Capital Gains (STCG): When the holding period of Debt Funds is 3 years or less
- Long Term Capital Gains (LTCG): When the holding period of Debt Funds is more than 3 years
After 1st April 2023, both STCG and LTCG will be taxed as per your slab rates after adding profits from Debt Mutual Funds in your income. This taxation is purely for Debt Funds, have less than 35% allocation in equity.
In case the fund contains equity portion between 35% to 65% of total assets, than for STCG, the tax will be as per slab rate and for LTCG, tax will be 20% with indexation benefit. So it depends on the composition of the mutual fund.
Conclusion
So to summarize, Monthly Income Plan or MIP in mutual funds India helps you to get monthly income based on the fund’s performance. It is best suited for retirees that are looking for regular stream of income. These mutual funds are taxed similar to debt mutual funds if their equity exposure is below 35%.
It is important to note that a mutual fund might not provide monthly income in every month during bear markets, when dividends from stocks are stopped and you get less interest from debt instruments. So there might be a month or two in which you don’t get any income from these funds before it starts giving you regular monthly income once again.
Some more Reading:
- SIP vs Lumpsum Investments Which is Better?
- Direct vs Regular Mutual Funds
- Multi Cap vs Flexi Cap Mutual Funds
Frequently Asked Questions
What should I invest in for monthly income?
You can invest in Post Office Monthly Income Scheme or Senior Citizen Savings Scheme that provides you guaranteed interest amount regularly. And for little more returns with extra risks, you can also invest in Monthly Income Plan Mutual funds that invests mostly in debt instruments to provide you interest income and preserve your capital.
What Is the Goal of a Monthly Income Plan?
The goal of Monthly Income Plan is to preserve your capital as an investor and provide regular payments in the form of interest income from debt instruments and dividends from equities to cover your monthly living expenses. These funds are less risky in nature compared to equity mutual funds.
Do we get guaranteed Monthly Income from Mutual Funds?
It is not guaranteed that MIP Mutual funds will provide monthly income on every month. During bear market, the fund performance might decrease during which the fund might stop your monthly income for a month or two to preserve your capital as an old investor.
Get EARLY Retirement!
Use Retirement Excel Calculator that will help you to Retire Early.
Click below button to download Retirement Calculator in Excel:
Watch how Retirement Calculator in Excel Works
Income Tax Calculator App – FinCalC
For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.
What you can do with this mobile App?
- Calculate Income Tax for new FY 2024-25 and previous FY 2023-24
- Enter estimated Investments to check income tax with Old and New Tax Regime
- Save income tax details and track regularly
- Know how much to invest more to save income tax
- More calculators including PPF, SIP returns, Savings account interest and lot more
Use Popular Calculators:
- Income Tax Calculator
- Home Loan EMI Calculator
- SIP Calculator
- PPF Calculator
- HRA Calculator
- Step up SIP Calculator
- Savings Account Interest Calculator
- Lump sum Calculator
- FD Calculator
- RD Calculator
- Car Loan EMI Calculator
- Bike Loan EMI Calculator
- Sukanya Samriddhi Calculator
- Provident Fund Calculator
- Senior Citizen Savings Calculator
- NSC Calculator
- Monthly Income Scheme Calculator
- Mahila Samman Savings Calculator
- Systematic Withdrawal Calculator
- CAGR Calculator
I’d love to hear from you if you have any queries about Personal Finance and Money Management.
JOIN Telegram Group and stay updated with latest Personal Finance News and Topics.
Download our Free Android App – FinCalC to Calculate Income Tax and Interest on various small Saving Schemes in India including PPF, NSC, SIP and lot more.
Follow the Blog and Subscribe to YouTube Channel to stay updated about Personal Finance and Money Management topics.
