Are you looking for a way to make your money work for you, so you can receive regular income without taking big risks? If you’re worried about not having a steady income or if you’re someone who’s already retired, it’s a common concern. Monthly Income Plans (MIPs) could be the answer to help you.
MIPs are special types of mutual funds that invest in a mix of debt and equity, which means they try to keep your money safe while also giving you a chance to grow it. The goal is to make sure that your investment can provide you with a steady flow of income, like monthly dividends or interest payments.
But here's the catch: This income isn’t always guaranteed. The payments depend on how well the fund is doing and whether there’s enough money to distribute. Even so, MIPs are still a good option if you're looking for a more predictable source of income and don’t want to take on too much risk. If you’re aiming to earn a steady income while avoiding high market risks, starting with a Monthly Income Plan is a step in the right direction. Start investing or SIP with just Rs. 100!
In this article, we’ll explain what a Monthly Income Plan (MIP) really is, how it works, and how you can use it to make sure your money provides steady income, whether you’re retired or just looking for extra cash flow.
How do monthly income mutual funds work?
Now that you know what a Monthly Income Plan (MIP) is, let’s talk about how these funds actually generate income.
MIPs invest in two main areas:
- Debt Securities (like bonds) for stability and a steady stream of income.
- Equity Securities (stocks) for a chance to grow your investment over time.
When you invest in a MIP, you can choose between two options:
- Growth Option: This is when your earnings (like interest) get reinvested into the fund, helping your money grow more and benefit from the power of compounding.
- Dividend Option: Here, you get regular payouts, just like receiving a paycheck. But this isn’t always guaranteed. The payouts only happen when there is enough money in the fund to distribute.
If you are unsure whether to go for growth or dividend, consider your lifestyle needs regular payouts may suit retirees, while reinvestment might help younger investors build wealth faster. Compare mutual fund options now!
How do monthly payouts occur?
When you invest in a mutual fund, you get two choices for how you want to use the returns. One is the growth option. In this, whatever returns you earn are reinvested. This means your money stays in the fund and can grow more over time.
The other is the dividend option. This is supposed to give you a regular payout, like a monthly income. But here’s the catch it’s not guaranteed. You only get a dividend when the fund earns extra money and the fund manager decides to share it.
Some months, the fund might perform well, and you’ll get a dividend. In other months, if it doesn’t do well, there may be no payout at all. Also, the amount you get might change. So, while it feels like a steady income plan, it’s not as reliable as a salary. This is why many experts say not to fully depend on these payouts for your regular expenses.
How to use systematic withdrawal plans (SWPs) to generate monthly income?
There’s another way to get money regularly from your mutual fund this is called an SWP or Systematic Withdrawal Plan. It works like this: instead of getting random payouts like in the dividend option, you decide how much money you want to take out and how often like once a month.
It’s kind of the opposite of an SIP, where you invest money regularly. In an SWP, you withdraw money regularly. Let’s say you’ve invested Rs. 20 lakh in a mutual fund. You can set it up so that Rs. 10,000 is sent to your bank account every month. The mutual fund will calculate how many units to sell based on the current price (NAV) and send you that amount.
For example, if the NAV is Rs. 20, they will sell 500 units to give you Rs. 10,000. If the NAV goes up or down next month, the number of units they sell will change too. This way, you get a fixed amount regularly, even if the value of your fund changes.
Features of monthly income plans
Monthly Income Plans, or MIPs, are made for people who want regular income but don’t want to take big risks with their money. These plans try to give you the best of both worlds—some safety and some growth. Here are some important features:
- Most of the money about 70% to 80% goes into debt instruments like bonds or government securities, which are usually more stable.
- The remaining amount goes into equity, or stocks, which can help the fund grow.
- You can choose between a dividend option, where you may get payouts from time to time, or a growth option, where your money stays invested and grows.
- The income from MIPs is not guaranteed. If the fund doesn’t perform well, you may not get a payout.
- MIPs are better for people who don’t want to take high risks and who plan to stay invested for a few years or more.
- MIPs often give better returns than fixed deposits or post office schemes, but not as high as full equity mutual funds.
Benefits of monthly income plans
If you want a steady income without taking too much risk, Monthly Income Plans (MIPs) can help. They are useful for people who want some money coming in regularly—like retirees or anyone who doesn’t want to touch their main savings too often.
Here’s how MIPs can benefit you:
- Regular income: These plans try to give you income regularly, like a salary, by distributing dividends. But remember, this income depends on how well the fund performs and is not guaranteed.
- Lower risk with some growth: MIPs put most of your money into safer debt instruments like bonds. A smaller part is invested in equity to help your money grow. This balance reduces risk but still gives you a chance to earn more than traditional savings options.
- Stability first: Since most of the fund is in debt instruments, your money is generally safer. This makes it a good choice for cautious investors.
- Tax benefits: For people in higher tax brackets, MIPs may be more tax-efficient than fixed deposits. You may end up paying less tax on the returns you receive.
If your goal is to enjoy peace of mind with low risk and steady returns, MIPs can help you create a passive income stream while keeping your savings safe. Start investing or SIP with just Rs. 100!
Example of an MIP
Let’s say you invest Rs. 5 lakh in a Monthly Income Plan. The mutual fund will use around 80% of your money Rs. 4 lakh—for buying safe debt instruments like government bonds or company debentures. The remaining 20%, or Rs. 1 lakh, goes into equity (stocks) to give you some growth potential.
Now, from the returns earned by the fund, it may give you monthly payouts as dividends. These can feel like small, regular paychecks. But it’s important to know that the fund only pays these dividends if it earns enough profit. So, in some months, you may get a payout; in others, you may not.
That’s why MIPs are not the same as fixed salary or pension plans. Still, for investors who don’t want big ups and downs, this mix of safety and potential income can work well over the long term.
Types of monthly income plans
There isn’t just one kind of MIP—there are two major types you can pick from, depending on how much risk you’re okay with:
- Conservative MIPs: These invest only a small portion—about 15% or less—into stocks. The rest is put into safer debt instruments. These are more stable and less affected by market ups and downs.
- Aggressive MIPs: These plans put more money—up to 25% or more—into stocks. That means they have a higher chance of giving you better returns, but they also carry more risk.
If you don’t like sudden ups and downs in your money, conservative MIPs might be better. But if you’re okay with a little more risk for potentially higher returns, you can try an aggressive MIP.
Taxes on monthly income plans
Before investing in Monthly Income Plans (MIPs), it's important to understand how they are taxed. MIPs are treated like debt mutual funds when it comes to taxation. This means the way you are taxed depends on how long you keep your money invested.
If you sell your MIP units within two years, the profit you make is called short-term capital gains (STCG). This is taxed as per your income tax slab. But if you sell the units after two years, the profit is called long-term capital gains (LTCG), and it is taxed at 12.5% without indexation, as per the rules announced in Budget 2024.
So, while MIPs can offer regular income, the taxes you pay on the gains can impact your overall returns. It’s always wise to keep these tax rules in mind before deciding when to invest or withdraw your money.
Ideal investors for monthly income plans
Not everyone invests for fast growth. Some people just want their money to stay safe and grow steadily while giving them some income on the side. That’s where Monthly Income Plans come in.
MIPs are great for people who want to earn more than a regular savings account or fixed deposit, but without taking too much risk. Retirees and those with a low-risk appetite often find these plans suitable. They are also good for people who want some exposure to equity markets but are afraid of high-risk investments. If you’re someone looking to grow your wealth slowly and get regular income, and you don’t want to worry too much about market ups and downs, MIPs could be a good fit.
Who should invest in a monthly income plan?
If you're someone who prefers stability over big profits, MIPs might be perfect for you. These plans are designed for investors who need a steady cash flow every month—especially helpful for retirees or people who need regular income for living expenses.
They also suit people who want to protect their savings but still want to grow them slowly. Since MIPs invest in both debt and equity, they offer a balance between safety and some growth. If you're in a higher tax bracket, MIPs can also offer better post-tax returns than traditional savings tools. But remember, while MIPs aim to provide monthly income, the payouts are not guaranteed. So, before investing, ask yourself: “Am I okay with some ups and downs in returns if it helps me get regular income?”
If you're looking for an investment that brings regular income with lower risk, especially after retirement, MIPs offer a dependable middle path more rewarding than FDs, yet less volatile than pure equity. Explore top-performing mutual funds!
Ways to invest in monthly income plans online
If you’ve decided that a Monthly Income Plan (MIP) fits your needs, the good news is that you can start investing without even leaving your home. Today, investing in MIPs online is simple and convenient.
Here are a few easy ways to get started:
- Online platforms: These platforms list multiple mutual funds, including MIPs, from different companies. You can compare features, returns, and fees, and then choose the one that suits you—all in one place.
- AMC websites or apps: Asset Management Companies (AMCs) that create these funds usually let you invest directly through their websites or apps. There are no middlemen involved, which can also reduce some extra charges.
- Online brokers or distributors: These are third-party platforms that also help you invest in MIPs and other mutual funds. They might charge a small fee or earn a commission, but they often offer tools and customer support to make the process easier.
Whichever method you choose, just make sure you understand the terms and select a plan that aligns with your goals.
How to analyse MIP returns?
When you're putting your money into something, you naturally want to know how much you could earn. MIPs don’t promise fixed returns like a bank deposit. But thanks to their small equity portion, they often perform better than pure debt funds.
In the past, MIPs have delivered returns of about 10% to 12%, which is higher than what you might get from a fixed deposit. But remember—these numbers are historical. Future returns can go up or down depending on market conditions.
Also, dividends are not fixed. The fund managers decide whether to give dividends based on how much surplus income the fund has earned. So, it's important to not only look at returns but also check how stable and consistent the fund has been over time.
How to choose the best monthly income mutual funds?
Choosing the right MIP might seem tricky, but it doesn’t have to be. You just need to ask yourself a few questions and do some basic checks.
- Why are you investing? Are you looking for regular income, long-term growth, or both?
- How much risk can you handle? If you don’t like seeing your investment fluctuate too much, pick a conservative MIP. If you can handle some ups and downs, you might go for an aggressive MIP.
- Is the fund diversified? A good MIP will invest across different sectors and assets, which helps reduce risk.
- Check past performance: This can give you an idea of how the fund has handled different market conditions. Just remember—past performance doesn’t guarantee future returns.
- Look at expenses: Funds charge an annual fee called an expense ratio. Lower ratios mean more money stays in your pocket.
- Understand the distribution policy: Since April 2021, dividends have been renamed as “distributions.” Always check if the fund explains when and how often payouts may be skipped.
Best time to buy a monthly investment plan
You might wonder—when is the right time to invest in an MIP? The truth is, there’s no perfect moment, but some situations make it easier or more beneficial.
- Start by looking at market conditions. If the market is stable or growing steadily, it may be a better time to invest. Keep an eye on economic indicators like interest rates and inflation. These can affect your returns, especially since MIPs invest a lot in debt instruments.
- Next, think about your financial habits. Are you getting a regular salary or pension? Do you have some extra money lying idle in your account? That’s a great time to put that money to work. Even setting up an investment at the start of every month can help you build a disciplined habit.
- Finally, always align your MIP investment with your personal goals. If you're saving for retirement, children’s education, or just a second source of income, let your investment plan support that timeline.
Turning unused savings into a monthly investment not only builds discipline but helps you grow your wealth while working toward your life goals. Open your mutual fund account today!
Disadvantages of monthly income plans
Monthly Income Plans (MIPs) sound great—they offer income and preserve capital. But like every investment, they come with downsides too. It’s important to know these before you decide.
- First, MIPs are exposed to market volatility. Even though they focus more on debt instruments, the equity portion can cause value to fluctuate. If markets fall, your investment might take a hit.
- Then there are taxes. Whether you hold your MIP for the short term or long term, capital gains taxes will apply, and that can lower your returns.
- Dividends also aren’t guaranteed. You might not receive a monthly payout every time, especially if the fund isn’t doing well. That can be stressful if you’re depending on it for your monthly expenses.
- Lastly, liquidity can be an issue. If you suddenly need cash, selling your MIP units might not be as fast or as easy during market downturns.
So, while MIPs can be useful, don’t forget to weigh the risks against the benefits.
Risks involved in monthly income plans
Just because the word "monthly income" sounds safe doesn’t mean MIPs are risk-free. Let’s break down some of the key risks you should be aware of.
- Market ups and downs: MIPs invest in both stocks and bonds. If the stock market drops or interest rates rise sharply, your fund’s value can go down too.
- Interest rate sensitivity: When interest rates increase, bond prices typically fall. Since MIPs are debt-heavy, this can affect your returns.
- Credit risk: The companies issuing bonds in the MIP could default on payments. That means you could lose some money.
- Inflation: If the returns from your MIP don’t keep up with inflation, your money may lose its purchasing power over time.
Recommended monthly income mutual funds to invest in India
- ICICI Pru PSU Equity Fund
- Quant Infrastructure Fund
- Quant Value Fund
- Quant Momentum Fund
- Mirae Asset NYSE FANG+ETF FoF
- Quant Multi Asset Fund
- Kotak Gold Fund
- SBI Gold Fund
- HDFC Gold Fund
- Nippon India Gold Savings Fund
Do MIPs add value for investors seeking regular income?
If you're someone who depends on a steady flow of money—maybe you're retired or managing monthly expenses then this question matters a lot. Can MIPs help?
The short answer is: yes, they can, but with a few things to keep in mind. MIPs aim to provide regular income, usually through dividends. While these dividends aren’t guaranteed, many MIPs try to meet investor expectations by maintaining some level of payout. It’s not a promise, but more like an unsaid goal most fund houses try to meet.
Also, if you want to avoid the uncertainty of dividends, you can use something called a Systematic Withdrawal Plan (SWP). It lets you take out a fixed amount every month from your invested amount—giving you more control and predictability.
So, if you're cautious, prefer regular income, and don’t want to take big risks, MIPs (especially when paired with an SWP) can be a smart part of your investment plan.
Things to consider before investing in monthly income schemes
Before you put your money into any MIP, pause and ask yourself a few simple but important questions:
- What are you investing for? Is it monthly income, long-term growth, or a mix of both? Make sure your MIP choice matches that.
- Can you handle some risk? Even though MIPs are more stable than equity funds, they’re not completely risk-free. Know your comfort level with ups and downs.
- How often do you need income? Understand how frequently the plan pays out and whether the income is fixed or can change over time.
- How did the fund perform before? While past returns don’t guarantee future ones, they can still give you clues about consistency.
- What’s the economic climate like? Interest rate changes or a downturn in markets can affect your returns. Timing matters.
- Any fees on early exit? Some funds charge an exit load if you withdraw money too early. Know these costs so you're not surprised later.
Key takeaways
Let’s quickly recap the most important things you’ve learned about Monthly Income Plans (MIPs):
- A Monthly Income Plan is a kind of mutual fund that tries to give you regular payouts—mostly in the form of dividends or interest.
- MIPs usually invest more in safer options like bonds and some part in stocks. This helps balance steady income with a bit of growth.
- They’re ideal for people—especially retirees—who want monthly income without taking too much risk.
- MIPs are not the same as fixed deposits. Their returns are not fixed and can go up or down depending on the market.
- The way you are taxed on MIPs depends on how long you stay invested.
- You should always check if MIPs match your risk level and money goals before you invest.
Conclusion
Monthly Income Plans give you a way to earn while keeping most of your money safe. If you're someone who values steady income and wants to avoid the stress of fully investing in the stock market, MIPs offer a useful middle ground. But like any investment, they come with their own set of risks and things to consider. The income isn't guaranteed every month, and returns can change. That is why it is important to understand how these funds work and whether their risk-reward balance fits your needs.
After you have performed the required analysis and identified the funds you want to invest in, you can visit the Bajaj Finserv Mutual Funds Platform and start your lump sum or SIP investment. With over 1,000 funds available to choose from, you are bound to find the funds that align with your risk preferences and financial goals.
