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 categorized as the best monthly income schemes. These offer opportunities to earn dividends and accelerate wealth creation. The two types are –
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.
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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