What is Monthly Income Plan?

What is Monthly Income Plan?

Members of the corporate world are always in the lookout for investment options. Unlike government jobs where one may continue working without any hassles until they retire, there is no guarantee that one may sustain their current corporate job until they retire. Today’s world is prone to epidemics and pandemics, leaving the lives of everyone at constant threat. In case of the sudden death of the sole bearers of the family, this might leave the entire family penniless. There is always a fear of losing regular income, and hence a lot of individuals turn to investment avenues like mutual funds.

Mutual funds are an investment tool that allows investors sharing a common investment objective to entrust their money in a scheme offered by a fund house. What fund houses do with the capital they collect from such investors is that they invest this pool of funds in money market instruments like stocks, debt, corporate bonds, government securities, etc. A mutual funds market performance heavily depends on the performance of its underlying assets.

If you wish to receive fixed, regular income through mutual fund investments, you may opt for a monthly income plan. However, remember that investments like mutual funds which are linked with market volatility do not guarantee any returns. However, if you wish to find more about monthly income plan (MIP), read further

Monthly Income Plan

A monthly income plan is a debt oriented hybrid fund whose investment objective to allow investors to receive periodic payouts on a monthly basis. This debt mutual fund monthly income plan’s asset allocation may vary depending on the scheme but is usually proportionated between equity and debt at a 20:80 ratio.

Monthly Income Plan or MIP is ideal for those who wish to have an alternate income which can come in handy during emergencies. Or one may utilize this money to make their monthly ends meet and save their entire month’s salary without touching it. These are just hypothetical situations, and one may utilize their periodic payouts according to their own convenience.

Benefits of Monthly Income Plan

Monthly Income Plans do investments an upper hand as compared to investments made in bank fixed deposits and post office monthly incomes. However, there are other benefits too that MIPs offer. Here are some of them:

  • Historically MIPs have fetched better returns as compared to fixed income investments like bank fixed deposits. Also, since MIPs invest predominantly in debt instruments, they are considered to be less volatile as compared to equity mutual funds. Hence, even risk-averse investors can consider the option for Monthly Income Plans.
  • There is no upper limit for investing in mutual funds via MIP. One may invest, depending on their risk appetite. Also, there is no entry load involved with starting Monthly Fixed Investments, and exit load is usually restricted to 1 per cent. However, investors are requested to check with their respective fund houses about the exit load and not solely depend on the things mentioned here.
  • Due to their nature of offering monthly payouts, MIPs are considered to be high liquidity product. Hence, investors wishing to add some liquidity to their portfolio may invest in mutual funds via MIP.
  • While most investors invest in mutual funds when the interest rate is low, it is better to invest in mutual funds via MIP when the interest rates are high. That’s because when it comes to MIP, a rise in interest rate leads to the fall in the fund’s NAV (net asset value).

Investing in debt funds via MIP may sound like a viable option but remember that mutual funds are volatile in nature and if you are new to the world of investing, seek the help of a mutual fund expert.

 

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