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A monthly income plan (MIP), which is now a conservative hybrid fund post-Sebi categorization, is one the most sought-after schemes by senior citizens. Monthly income plans come under the hybrid mutual fund category. This means that most of the portfolio is invested in debt and money market instruments, which contributes to MIP’s moderate risk profile.
Investors enjoy the comfort of liquidity while also receiving a steady stream of dividends. However, as the name implies, MIPs do not provide a consistent and regular monthly income. Dividends, like any other market-linked investment, are paid depending on profitability.
“MIP invest 10-25% of total assets in equity and equity-related instruments and 75-90% of assets in debt instruments. Given the low exposure to equity and the flexibility in terms of withdrawal of 10% of the investment within 365 days,” said Dhananjay Banthia, CFP, director of Smart Acumen Consulting.
What are the features?
Monthly income plans do not have an investment cap. You are not required to pay an entry fee or any processing fees. MIPs cannot have an exit load greater than 1%. These funds do not have a lock-in period and provide a relatively high level of liquidity.
Taxation aspect
MIPs are taxable similar to debt-oriented funds. Hence, if the investor sells the units before three years, the short-term capital gains are added to his income and taxed as per the investor’s tax bracket. If the units are held for more than three years, LTCG tax at a rate of 20% post indexation is applicable.
Who can invest?
-MIPs are appropriate for investors seeking exposure to the equity markets but unwilling to accept excessive risk.
-The majority of MIP investors are retirees, homemakers, or those preparing to retire. In their simplest form, monthly income plans are for those wishing to invest their money to receive a regular income in the form of dividends.
-Additionally, first-time mutual fund investors can use MIPs as a stepping stone to gain market experience.