As the name clearly suggests, a Monthly Income Plan or MIP is a monthly scheme where an investor can earn a sum of money every month. These monthly plans are an ideal investment option for the investors who are looking for a regular income. It includes mutual funds, which are pooled funds invested in debt corporate securities. Generally, in a Monthly Income Plan, about 70-80% of the funds are invested in debt, and only the remaining goes to the equity market.
There are two variants of MIP’s depending on the risk factor involved. The first type is an aggressive MIP, which has around 70% debt and 30% of equity; considered riskier due to high equity ratio, although it generates higher returns. Second being the conservative MIP, having only 20% equity and the rest 80% in debt. Comparatively less equity in this option makes it safer but also yields low returns.
There are two types of MIP’s depending on the type of returns that you are expecting. MIP with dividend option provides you a regular income through dividends you can select the time period as per your requirement. The other is a growth option, which involves capital appreciation through the constant returns.
Top monthly income plans in India:
- Aditya Birla Sun Life Regular Savings Fund: It is a highly debt oriented fund, which has been generating high returns. It generated a high return of 3.02% returns in the last year and over 11.37% in the past 5 years. It is an aggressive fund with about 80% investment in debt and other money market instruments, whereas only 20% is invested in equity. You can start the scheme with as little as Rs. 1,000 and then keep increasing your investment monthly through the systematic investment plan. An investor can submit 6 post dated cheques as the regular premium of this plan. The total assets managed under this scheme are more than 2,000 crore rupees, making a good hybrid plan to invest in.
- Franklin India Debt Hybrid Fund: A highly recommended conservative plan that can earn you good regular returns. This plan has been yielding a substantial return of 9.56% in the last few years. The minimum investment required here is 10,000 rupees which can be easily paid in monthly systematic investment plan of Rs 500 every month. It can be started with an initial payment of Rs 1,000 and Rs 500 in the subsequent months. The assets under this scheme are of Rs 386 crores but involve the stocks of many big players like Bharti Airtel, HDFC Bank, Axis bank and even State Bank of India in their portfolio.
- ICICI Prudential Ultra Short Term Fund: A major proportion of this conservative scheme is invested in debt securities. It includes stocks of Tata Steel, Axis Bank, Larsen and Turbo and even Reliance Industries. It has generated substantial returns of about 6.46% over a period of 5 consecutive years. It provides both dividend and growth opportunity to the investor. The dividend is paid after every quarter with the net asset value of Rs 10 whereas in the latter option net asset value is Rs 18.15. The returns of this scheme are limited but the risk involved is also relatively less.
- HDFC Hybrid Debt Fund: This monthly income plan is preferred by investors for the apparent reason that it has been producing an average return of 10.39% in the period of 5 years. HDFC hybrid fund is a debt oriented aggressive fund, launched only in the year 2003. Investors can initially invest 5,000 rupees and then follow up with 500 rupees on a monthly basis. The stock includes companies like Infosys, ICICI Bank, State bank of India and Larsen and Turbo.
- UTI Regular Savings Fund: This monthly scheme was also launched in 2003 and has been giving a return of 9.67% ever since. Although in the past 3 years, the returns touched a high at 7.17 percent. Investors can start this scheme with a mere investment of Rs 5,000. Their portfolio consists of stocks of many financial and banking institutions, along with securities issued by the Government of India. This has been marked by rating agency CRISIL and is conservative monthly income plan.
- ICICI Prudential Regular Savings Fund: A relatively new scheme, launched only in 2004 but has a very attractive security portfolio. It has stocks of big players like Maruti Suzuki, HDFC Bank, Motherson Sumi and TVS Motors in its basket. The returns have been consistent, with an average of 10%, and has access to the government of India securities and GOI 2030 as well.
- Reliance Hybrid Bond Fund: The portfolio of this monthly income plan majorly includes stocks of Reliance Industries and HDFC Bank. This hybrid bond has been producing returns of 11.21 % over the period of 10 consecutive years, whereas the average returns of the last 3 years are 6.48%. This scheme can be initiated with an initial investment of Rs 5,000. Reliance Hybrid Bond Fund includes the debt securities like Government of India 2044 as well.
Important things to be noted:
Before you invest in a monthly income plan, it is advised to keep the following points in mind:
- Although MIP’s guarantee a fixed and regular return, it is important to know it entirely depends on how the stock performs. So, if you carefully choose the stock only then, you can earn regular returns.
- Stock market fluctuations affect the conditions and market rates of the stocks. Therefore, the returns are dependant on the interest rate which is decided by the government. Hence, the performance fluctuated on a daily basis.
- Taxes are also applicable to any incomes or gains arising from monthly income plans. It is liable to tax under the category of Capital gains as per the Income Tax Law.
- Be careful while purchasing and selling the MIP’s as they are prone to wrong selling due to high commissions.
So, if you are looking for a regular steady income, without involving too much risk of losses, monthly income plans can be the right investment alternative for you. It can take care of your regular, day-to-day expenditure and secure your future. It is a relatively safer and accessible option, especially if you are close to your retirement age and in need of regular incomes, due to the inclusion of debt and mutual funds. It is gaining popularity among Indians, who are preferring it over the all time favorite alternative of fixed deposits due to the many advantages it carries.