What is a Monthly Income Plan and How is it Beneficial?

Written by : Knowledge Centre Team

2021-02-04

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Have you ever thought about what would be your financial source of income, if your regular source of income suffered a setback due to some mishap? People have this in them that term insurance will serve the purpose. But here's the catch, monthly income plan (MIP) that involves paying out the money to the family/nominee as a fixed monthly income over a long period.

A Monthly Income Plan (MIP) invests primarily in debt and equity securities with a mandate of producing cash flows and preserving capital. It has aimed to provide a steady stream of income in the form of dividend and interest payments. Therefore, it is typically attractive to retired persons or senior citizens who do not have other substantial monthly income sources.

It is the best alternative source for the ones who assure regular income as their backup. A scheme where an individual receives a certain sum of money every month accrues after a few years of payment of the premium. This plan is mostly referred to as monthly guaranteed income plans, assured monthly income plans or monthly pension plans.

Two Types of Monthly Plans

There are two types of investment options that can be categorised as the best monthly income schemes. 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 AMC distributable surplus and are paid when the said fund earns profit from the market.

2. 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.

Features of Monthly Income Plan

MIPs generate higher returns than pure debt funds due to the equity-presence. They have delivered 10% to 12% returns, which is more than what fixed deposits offer. However, the dividend pay-outs are at the discretion of the fund company, not guaranteed. Here are some interesting features of monthly income plan-

It delivers more returns than other similar saving schemes and fixed deposits in terms of returns.
There is no limit on the investment for monthly income plans.
You do not have to pay any entry load or processing charges
The exit load cannot exceed 1%
High liquidity

Six Factors to Consider before Investing

Monthly income being the debt-oriented mutual fund, the earnings under this are taxable. You have to pay tax on dividends and tax on capital gains. Following factors will help you know the things better before investing-

Financial goal to achieve short term and long-term gains
Availability of pay-out options in monthly schemes.
Potential of wealth generation
Tax benefits offered
Risk willingness of an individual
Current financial status of the individual planning to invest

If you have a considerable disposable amount of money, then investing it in saving schemes or monthly income plans that offer regular monthly plans is a great idea. This ensures that your idle money starts paying out dividends or profits.

A. Fixed Deposit

With monthly pay-out options, banks and financial institutions provide the facility of fixed deposits. This type of deposit is mainly recommended for pensioners or senior citizens.

Fixed return
Regular pay-outs
Low risk of investment
Allowance of partial withdrawal
Loan against FD

Learn what is a fixed deposit plan and what are the benefits of including it in your investment plan.

B. Post Office Monthly Income Scheme

Best suitable for investors who are risk-takers wanting continuous income by any means of the source. With a deposit period of 5 years comes an interest rate of 6.60% from April 1st 2020. POMIS accounts can be opened in a child's name and provided he/she is 10-year-old or more.

Low-risk investment
Low initial deposits
Return is guaranteed
Reinvestment facility is on.
Nomination facility too.

Numerous non-banking financial companies (NBFCs) and housing finance companies (HFCs) offer corporate deposits. These are similar to bank deposits, but the only difference is that you invest with a corporate entity, which is not as secure as a bank. It offers a high-interest rate and adds flexibility, which the bank deposits don't provide. Before making investments in corporate deposits, you must check for the financial strength and credibility of the NBFC.

Learn more about post office monthly income scheme.

B. Senior Citizen Saving Scheme

Scheme available for senior citizens of 60 years of age or above. This scheme provides them with the benefit of earning a higher return with minimum risk involvement. All a senior citizen has to do to invest in this scheme is to visit a certified bank and post offices. The money received from retirement benefits can also be invested in this scheme by senior citizens. Maximum limit of investing is Rs 15 lakh. Features of senior citizen saving scheme:

Safe investment option guaranteed by the Indian government.
Availability of nomination facility
Can apply from any authorised bank or post office nearby.

Learn more about Senior Citizen Saving Scheme.

Majority of the MIP investors are retirees, homemakers, and those about to retire as per the depositories' data. Monthly income plans are for individuals looking to park their savings to get a regular income. Also, the first-time mutual fund investors can consider MIPs as the stepping stone to experience the market.

A lot depends on the asset manager's expertise as the percentage of equity allocation is at his discretion. The fund manager selects the companies (large-cap, mid-cap, small-cap or micro-cap) to invest pooled investment, which helps manage risks. These funds are moderate-risk bets, and they mostly invest in debt securities such as debentures, public securities, and corporate bonds.

A monthly income scheme is a smart way to enjoy financial stability and security. Depending on the family's needs and life goals, you may choose to opt for a monthly income plan or scheme. Although choosing the best monthly scheme will provide future benefits to you and your family.

What do Saving Plans Do Not Cover?

Post Office Monthly Income Scheme: Features & Interest Rate

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