What is a Monthly Income Plan (MIP) mutual fund?
Primarily, MIP of mutual fund is a debt-oriented scheme that generally invests up to 75-80% of its corpus in debt instruments and the remaining in equity instruments. MIPs aim to provide investors with regular pay-outs (though dividends) – although it is not mandatory for the mutual fund scheme as dividends are paid at the discretion of the fund house and subject to availability.
MIP aims to provide reasonable returns on a monthly basis through investment in debt as well as a small portion in equities. They invest predominantly in interest yielding debt instruments (commercial paper, certificate of deposits, government securities and treasury bills). The debt investments ensure stability and consistency while the equity instruments in the portfolio boost the returns. MIPs are market-linked (to the extent of their equity portfolio).
Why to Invest in MIP?
Stable Wealth Creation –These Products offer an extremely attractive risk adjusted return proposition.
Flexibility to investors –MIP schemes has several options catering to the individual needs of the investors:
1. Monthly Dividend Option for an investor needing monthly income.
2. Monthly Payment Plan for investors who do not want Dividend Distribution Tax to be deducted but want a monthly stream of income – unit’s equivalent to the gross dividend per unit as planned in Monthly Dividend Option would be redeemed and paid out to investor.
3. Flexi-Dividend Option for investors seeking dividends from time to time.
4. Growth Option for investors seeking cumulative growth by way of capital appreciation.
Switch Option – MIPs like other mutual fund products does not provide the security of regular dividends as they are governed by the volatility of the market. In such instances, there is a quick fix route that can be adopted in the form of Systematic Withdrawal Plan or SWP. Through this you can opt for a growth option under the same scheme. However, surveys show that inspite of any irregularity the return excels other forms of debt investments.
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