Typically designed for conservative risk-averse investors and pensioners, the Monthly Income Plan is an investment option that parks money mainly in lower-risk securities.
It acts as a steady source of income for those individuals who want to create an alternate source of monthly income. The income generated through Monthly Income Plans is mostly in the form of interest and dividends.
However, the monthly income scheme does not offer a fixed revenue, instead, like other market-dependent investment options, returns is governed by the profit generated.
The approach of monthly income scheme is primarily debt-oriented as over 70% – 80% of its fund goes into debt funds, while the remainder goes into stock options.
This is done with an aim to earn steady returns and capitalise on the investment whenever possible through equity exposure.
The following features and benefits of the best monthly income scheme make it a feasible investment option for risk-averse investors –
There are two types of investment options that can be categorised as the best monthly income schemes. These offer opportunities to earn dividends and accelerate wealth creation.The two types are–
Being a debt-oriented mutual fund, a Monthly Income Scheme is liable for taxation. Also, both long-term and short-term capital gains made through an MIP are applicable for taxation.
In the case of short-term capital gains (STCG), if individuals decide to dispose of the units they were holding before 3 years, the accrued gains will be added to their income. The total will then be taxed as per their respective income slabs.
If individuals decide to liquidate their investment after 3 years, the long-term capital gains (LTCG) will incur a tax at the rate of 20%.
The fund houses further levy a dividend distribution tax at the rate of 25% before distributing the accrued dividends. However, the dividends that the individuals will receive at hand will not attract any tax.
|Type||Debt-oriented hybrid mutual fund|
|Liquidity||Higher than most schemes|
|Returns||Better than FDs and POMIS|
|Management||Managed and monitored by fund managers|
|Component||70% – 80% in debt funds and remainder in stocks|
|Suitability||Conservative investors and retired pensioners|
|Tax-benefits||Applicable on dividends at hand|
The perfect blend of risk and reward makes an MIP scheme a feasible investment option for the retirees who have a limited source of steady income. Besides providing them with a source of earning every month, such a scheme would help the retirees plan against any unfortunate expenses. Additionally, investors who are averse to risk and tend to have a conservative outlook towards investments can park their money in Monthly Investment Scheme.
Individuals who belong to the higher tax bracket can also consider MIPs for higher tax-efficiency, whereas individuals who belong to the lower tax bracket and want to improve their scope of earnings can consider the growth-oriented option of these schemes. It will help them earn higher returns and facilitate them to reduce their associated tax burden.
Before investing in a Monthly Income Scheme, individuals should take into account a few factors; these are –
Individuals should also take into account the market conditions before investing in the said schemes. A higher rate of interest leads to a drop in the Net Asset Value, which is why most seasoned investors tend to invest in the Monthly Income Scheme when the rate of interest is high.
Since there are several Monthly Income Plans in the market these days, individuals should take extra care before opting for a particular type of scheme. Individuals who intend on investing their money in a MIP should first understand their needs and requirements as an investor.
They can further conduct comprehensive research on the best monthly income scheme in 2022 and compare their scope, offerings and performance. Doing so, they would be able to understand better, which type of scheme is better for them and how they can make the most of it.
Related Mutual Fund Pages
List of AMC in India