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 dividend.

However, monthly income scheme does not offer a fixed revenue, instead, like other market dependent investment options, returns is governed by the profit generated.

What are Monthly Income Plans?

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.

What are the Key Features and Benefits of Monthly Income Plans?

The following features and benefits of the best monthly income scheme make it a feasible investment option for risk-averse investors –

    • No limit: The scheme is flexible and does not come with any upper limit on its investment amount. It allows someone to invest in the scheme as per their capability and requirement.
    • Open-ended option: Monthly Income Scheme is an open-ended scheme. Individuals do not have to pay any processing charges as an entry load for entering the said scheme. Additionally, it comes with an exit-load that is less than 1% of total sum of investment.
    • Liquidity: An MIP scheme is more liquid when compared to most other schemes. As there is no lock-in period applicable on the investment, investors can choose to withdraw their funds to meet any unforeseen emergency.
    • Better returns: Earnings generated through a MIP are better than that of traditional fixed deposits and Post Office Monthly Income Scheme.
    • Guaranteed income: Investors are guaranteed to earn assured returns each month, despite the quantum of the sum varying depending on the financial market.
    • Lower-risk: MIPs are associated with lower-risk component. It is because money is invested in low-risk securities like preferred shares, fixed-income instruments and dividend stocks.
  • Professionally managed: MIP is managed by professional fund managers who are better equipped to understand the functioning of the investment market. They not just monitor schemes but also decide all the ‘when, how, and how much’ when it comes to switching funds to debts and equities.

What are the Types of Monthly Income Plans?

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 –

  1. Dividend-oriented monthly investment plan: The earnings generated through such plans are in the form of dividends. No tax is levied on the dividend paid to the individuals.Such dividends are paid from the distributable surplus by the AMC and are paid when the said fund is earns profit from the market.
  1. Growth-oriented monthly income plan: Through this plan, earnings accrued on the capital get added to the invested amount. It facilitates wealth creation along with corpus growth.

What is the Tax implication of Monthly Income Plans?

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.

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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.

Monthly Investment Scheme at a Glance

Type Debt-oriented hybrid mutual fund
Investment limit None
Liquidity Higher than most schemes
Returns Better than FDs and POMIS
Risk Moderately low
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

Who Should Invest in a Monthly Income Plan?

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.

Things to consider before investing in Monthly Income Schemes.

Before investing in a Monthly Income Scheme, individuals should take into account a few factors; these are –

  • Short-term and long-term financial goals they want to achieve.
  • Investment Time horizon they are comfortable with.
  • The pay-out options of that particular scheme.
  • The premium of an MIP scheme and its viability.
  • Scope of income/wealth generation of the scheme.
  • Risk appetite and current financial standing at the time of availing the scheme.
  • Tax benefits offered on an MIP scheme.
  • Their current lifestyle and suitability.

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 2019 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.

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