Monthly Income Plan - Complete Information about MIP

Some of the key features of MIP investment are as listed below:

1. Allocation of Assets: Investment allocation in MIPs can vary as it is a mix of debt and equity funds. Generally, a major portion is invested in fixed-income securities for stable income and a relatively portion in equities for increment in capital.
2. Payouts regularly: MIPs allow you to earn regular payouts. These payouts are often earned monthly or quarterly and include income generated from the underlying investments.
3. Lower Risk: MIPs generally have a moderate risk profile. The allocation to debt securities provides stability, while the equity component introduces some market risk. The risk level can vary among different MIPs based on their asset allocation.
4. Easy Liquidity: In most cases, MIPs offered by mutual funds allow you to buy or sell units on any working day. The funds can be liquidated at any time, and only on the market conditions and the underlying assets.
5. Diversified portfolio: By investing in a mix of debt and equity instruments, MIPs offer diversification benefits to the investor. This diversification helps manage risk and provides better returns.
6. Professional managed: MIPs are managed by professional fund managers who make investment decisions based on market conditions and their analysis.
7. Flexible investment: You can choose from different MIPs based on your risk tolerance capacity and investment goals. The flexibility to select funds with varying asset allocations allows for customisation according to your preferences.

Factors to consider before investing in Monthly Income Plans

Consider the factors listed below before making an investment choice in MIP:

1. Objective of the investment: If you are looking for regular income with low risk and decent capital appreciation, MIPs could be an option for you. It is important to understand your objective before deciding.
2. Risk tolerance level: It is important to assess your risk tolerance capacity before applying for MIP.
3. Structure of payments: Understand the payout structure of the MIP you are investing in. Know how often payouts will be made on a monthly or quarterly basis and whether the payouts are fixed or variable. This helps manage expectations regarding regular income.
4. Performance History: Evaluate the historical performance of the MIP. While past performance is not indicative of future results, it provides insights into the fund's track record and how it has performed under different market conditions.
5. Condition of the market: Do check the present market conditions before investing in MIP. Economic factors such as interest rate movements, market trends globally and locally can impact the performance of the MIP, especially the fixed-income component.
6. Exit Load: An exit load is a fee charged for taking money out of a fund before a certain time limit expires. Check if there are any exit loads associated with redeeming units of the MIP.

Types of Monthly Income Plans

The Monthly Income Plans are broadly divided into two categories:

1. Dividend-based MIP: A dividend-based MIP is a type of mutual fund that primarily focuses on generating regular income for investors through dividend distributions. MIPs typically invest in a mix of debt and equity instruments, with a larger allocation to fixed-income securities to generate income.
2. Growth-based MIP: You do not earn dividends in growth-based MIPs. Instead, the profits that are made from your investments are re-invested in the funds. However, it is important to note that the fund you invest in also has the money of other investors. You are allocated parts or ‘units’ of your fund.

How are Monthly Income Plans taxed?

The Monthly Income Plans (MIPs) in India are taxed based on the allocation of assets. It depends on whether it falls under the category of equity-oriented funds or debt-oriented funds.

1. Equity-based MIPs: If your MIP investment’s 65% or more is allocated to equity-related funds, it is considered an equity-based fund for tax purposes.
   1. Tax on Capital Gains:
      1. Short-Term Capital Gains (STCG): If the units are held for less than one year, any gains are treated as short-term capital gains and taxed at a rate of 15% (plus surcharge and cess as applicable).
      2.  Long-Term Capital Gains (LTCG): If the units are held for one year or more, gains exceeding INR 1 lakh in a financial year are subject to a long-term capital gains tax of 10% without indexation.

1. Debt-Oriented MIPs: If your MIP investment’s less than 65% is allocated to equity-related funds, it is considered an equity-based fund for tax purposes.
   1. Tax on Capital Gains:
      1. Short-Term Capital Gains (STCG): If the units have been held for less than 3 years, they are considered short-term gains and are added to the investor’s tax base. The gains are taxed on the individual’s income tax bracket.
      2. Long-Term Capital Gains (LTCG): If the units are held for three years or more, gains are taxed at a rate of 20% with indexation benefit. Indexation helps adjust the purchase price for inflation, reducing the taxable capital gains.  

1. Dividend Distribution Tax (DDT)
   1. MIPs may declare dividends, and Dividend Distribution Tax (DDT) is applicable on the dividend income. The tax is deducted at the source before the distribution of dividends to unit holders.
   2. For equity-oriented MIPs, DDT is not applicable as these funds are exempt from DDT.
   3.  For debt-oriented MIPs, DDT is applicable at the rate of 25%, including surcharge and cess.

Monthly Income Plan Options for 2024

The below listed are some of the MIPs available in market for the year 2024:

1. Aditya Birla Sun Life Regular Savings Fund
   1. The Aditya Birla Sun Life Regular Savings Fund offers consistent returns with a minimum investment of Rs. 500. This is a hybrid debt-oriented fund. It primarily invests in debt and money market instruments, but also has a small portion in equities. It is suitable for moderate to low-risk investors seeking capital appreciation and consistent returns.
2. Baroda Pioneer Conservative Hybrid Fund
   1. The Baroda Pioneer Conservative Fund is a hybrid debt fund that aims for safe and consistent returns through investments in debt and money market instruments. It also allocates a portion to equity and equity-related securities for long-term capital growth. It offers a moderately high risk profile and is an attractive investment option for those seeking a regular income stream.
3. DSP Blackrock Regular Savings Fund
   1. The DSP Blackrock Regular Savings Fund is a hybrid debt fund that aims for consistent and reliable returns through high-quality debt securities. It also allocates a minor portion to equity securities for long-term capital growth. It has yielded an average return of 8.5% since its inception.
4. HDFC Hybrid Debt Fund
   1. The HDFC Hybrid Debt Fund offers a favourable monthly income plan with an average return of 9.76% over the past 5 years. It invests in government securities and corporate bonds issued by top companies like ICICI Bank, SBI, Infosys, and L&T. The minimum investment required is Rs. 5,000 or Rs. 500 through SIP. The fund provides regular returns and the potential for long-term capital growth, making it suitable for those with a moderate risk appetite. Ideal for those seeking a consistent income stream and capital appreciation.
5. ICICI Prudential Monthly Income Plan 25
   1. ICICI Prudential MIP 25 is a monthly income plan that invests in debt and money market instruments. It also allocates a small portion to equity-related instruments for long-term capital appreciation. The fund offers a moderately high-risk profile and has yielded a return of 9.8% since its inception. 
6. Invesco India Regular Savings Fund
   1. The Invesco India Regular savings fund is a hybrid debt fund. It was launched on 1 June 2010 and is considered one of the best monthly income plans. The main objective of the scheme is to earn a steady return by investing in a diversified portfolio of fixed income securities.
   2. This portfolio includes Gold ETF, equity and equity-linked instruments. The fund has a moderate investment risk. Since its launch, the fund has returned 6.9%. It is suitable for investors with moderate or low risk tolerance looking for a consistent return on their investment.
7. Reliance Hybrid Bond Fund
   1. Reliance Hybrid Bond Fund is one of the best monthly income plans that provides consistent returns over the last 5 years with a return of 9.84%. You can invest in this scheme for a minimum of Rs.5000 as a lump sum or through SIP for Rs.500.
   2. The fund primarily invests in debt instruments and money market instruments to provide a safe and stable return on investment. A small portion of the funds is invested in equities to provide capital appreciation.
   3. This fund is suitable for investors with moderate to low-risk appetite who are looking for both capital appreciation and regular return on investment.
8. UTI Regular Savings Funds
   1. The UTI Regular Savings fund has returned 9.72% since its inception. The fund can be invested with a minimum lump sum of Rs. 5000, or Rs. 500 via SIP. The fund has returned 10.18% in the last 5 years, and 8.44% in the last 3 years.
   2. This monthly income plan primarily invests in debt instruments such as government securities, and corporate bonds. 

Disadvantages of Monthly Income Plans

Every mutual fund will have one or the other disadvantage. MIPs are subject to the following inadequacies:

1. Dividend payouts are not fixed in nature. This is because of the volatility of the equity segment. Even the returns from the debt portion will differ if there have been interest rate changes in the economy. When the interest rate goes down, the debt segment performs well but with a rise in interest rates, the fund tends to perform badly.
2. Payments from an MIP are dependent on the performance of your fund and the availability of excess cash in the investment portfolio. If the market is volatile then there would be less cash and hence the payouts will be less or negligent. The principal amount of investment is left untouched and used for further re-investments.
3. Dividend payouts, however, have an additional tax that has to be paid by the Asset Management Company (AMC). On an amount less than Rs. 10 lakh, a Dividend Distribution Tax (DDT) of 15% has to be paid, while on amounts higher than Rs. 10 lakh, 10% tax has to be paid by the receiving individuals as well. Dividends are given out after the tax deduction, which will reduce the sum total of your income.
4. Many MIP funds charges an exit load of 1% if the units are redeemed before 12 months of starting them.

MIPs are a good investment option only if your primary goal is to safeguard your money and earn yourself a steady income. Some of the best-rated aggressive MIPs in India are Franklin India MIP, UTI MIS - Advantage Plan, Birla SL MIP II-Wealth 25 and Reliance MIP, while Birla SL Monthly Income, ICICI Prudential Regular Income and SBI Magnum MIP are conservative plans.

GST rate of 18% applicable for all financial services effective July 1, 2017.