Every month your salary is credited. You pay for expenses and save some of them. But what happens when that income stops? Or is your primary income enough for emergencies? The immediate response may be a term plan, but they pay a lump sum to the nominee at maturity or upon death. But one must look past them and invest in mutual funds via a Monthly Income Plan. Monthly income from mutual funds provides regular cash inflow to investors for an extended period even after retirement. Let us see how they work.
Monthly Income Plans (MIPs) are investment schemes designed to provide regular income to investors. These plans typically invest in a mix of debt and equity instruments, offering a balance between stability and potential growth.
MIPs invest 70% to 80% of the funds in debt funds and the rest in stocks. This helps ensure steady returns for investors while offering capital appreciation through equity exposure.
MIP mutual funds invest money in low-risk securities like preference shares, dividend stocks, and fixed-income securities. MIPs are ideal for those seeking consistent income with relatively lower risk compared to equity investments.
1. Regular Income: MIPs aim to provide a steady stream of income, usually on a monthly basis, making them suitable for retirees or those seeking supplementary income.
2. Low Risk: With a significant portion of investments in debt instruments, MIPs offer relatively lower risk compared to equity-focused funds.
3. Open-ended scheme: MIP is an open-ended scheme, meaning you don’t have to pay any processing or entry fee while investing in a Monthly Income Plan. Further, it features an exit fee of less than 1% of the total investment amount.
4. High liquidity: MIPs don’t carry a lock-in period, which allows you to withdraw your investment to meet any financial emergency.
5. No investment limit: Unlike many other investments, Monthly Income Plans don’t have an upper limit on the amount that you can invest. You can invest any amount that fits your financial goals.
6. Better returns: MIPs allow investors to earn higher returns on their investments as compared to traditional avenues like fixed deposits or post office monthly income schemes.
7. Professional management: MIPs are ideal for beginner investors as they are managed by professional fund managers. They study the market closely and are experts at identifying potential opportunities and risks to keep your portfolio optimised.
There are two types of investment options that can be categorised as the best monthly income schemes. These offer opportunities to earn dividends and accelerate wealth creation. The two types are–
- Conservative MIPs: These plans invest up to 15% of the funds in equity and equity-related instruments. While this type of MIP is less volatile, it also comes with a lower return potential.
- Aggressive MIPs: These plans invest up to 25% or more of the funds in equity and equity-related instruments. They are riskier and more volatile than conservative MIPs but they also have the potential to generate high returns in the long term.
| Monthly Income Scheme | Minimum Investment Period | Investment Amount | Return Rate p.a. (%) | Risk Level | Tax Benefits |
| Post Office Monthly Income Scheme | 5 years | Single life: INR 1000- INR 9 lakhs Joint life: INR 1000- INR 15 lakhs | 7.4 | Low | No tax benefits |
| Senior Citizen Savings Scheme | 5 years (can be extended by additional 3 years) | INR 1000 – INR 30 lakhs | 8.2 | Low | Tax deductions available under Section 80C |
| Fixed Deposits | 3 months to 10 years | Starting from Rs. 1000 onwards, no max. limit | 4% onwards | Low | Tax benefit only on 5-year tax-saver FDs |
| Systematic Withdrawal Plans | 6 months minimum | Usually INR 500 – no limit | Market Linked | Varies depending on the fund's investment strategy | Tax benefits apply only to ELSS funds |
| Equity Share Dividends | Varies | Minimum Amount varies based on individual share price, no upper limit | Market Linked | High | No tax benefits on dividends |
| Annuity Plans | Varies | Usually INR 10,000 – no limit | 7-10 | Low to medium | Tax benefits under Section 80C & Section 10(10D) |
| Corporate Deposits | 1 year to 10 years | Starts at Rs. 5000 with no upper limit | Generally offers higher returns than bank FDs | Risk level varies based on the company's creditworthiness | No tax benefits |
Since a monthly income plan is a debt-oriented mutual fund, both short-term and long-term capital gains taxes will be applicable depending on the profits and holding period.
- Short-term capital gains (STCG) tax: STCG will be applicable if you sell your mutual fund units within three years. In this situation, the gains from the sale will be added to your income and taxed as per the applicable income tax slab.
- Long-term capital gains (LTCG) tax: LTCG tax of 20% will be applicable if you sell your mutual fund units after 3 years.
Fund houses may also levy a dividend distribution tax before distributing the dividends. However, you won't be taxed on the dividends you receive.
- Risk tolerance: Different monthly income schemes have different risk levels and volatility. Therefore, it's important to consider your risk appetite to make an informed decision.
- Investment objective and horizon: MIPs are ideal for mid to long-term investments. Before you start investing in them, clearly define your investment objective and the duration for which you wish to stay invested.
- Market conditions: Carefully analyse the prevailing market conditions and interest rates to gauge the potential performance and returns of a monthly income scheme.
- Fund manager: The fund manager of the MIP is responsible for managing your portfolio. When selecting a fund, make sure to check the fund manager's experience and track record.
Monthly Income Plans provide monthly income from mutual funds, which makes them great for investors looking for a stable source of income. MIPs are particularly a life-saver for senior citizens and retirees as they get to invest in mutual funds with monthly returns giving a cash inflow to meet their expenses in old age.
MIPs are also a perfect monthly income scheme in mutual funds to leave behind a legacy for your family. Upon death, nominee family members continue to receive monthly income from mutual funds till the term expires.If you plan to invest your money completely online, check out Moneyfy by Tata Capital. Moneyfy is a one-stop platform for you to invest in mutual funds, FDs, insurance plans, and pension schemes. With the SIP calculator available on the Moneyfy website, you can easily plan your investments based on your financial goals. Visit the Moneyfy website, register, and start investing today.
You can generate monthly income from mutual funds by investing in an SWP scheme or opting for the dividend option.
You can get monthly income from investments by opting for the dividend option or investing in the following instruments:
- Monthly Income Plan
- Systematic Withdrawal Plan
- Life Insurance Plus Saving
- Corporate Deposits
- Long-term Government Bonds
- Senior Citizen Saving Scheme
- Post Office Monthly Income Scheme
A monthly income plan invests in low-risk securities, allowing you to earn a steady monthly income by investing every month and earning interest.
Yes, you can earn monthly income from mutual funds by investing in an SWP scheme or opting for the dividend option.
Yes, a monthly income plan can be a good investment if you're looking to earn a fixed income and have a low-risk appetite.
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18 February 2025
7 mins read
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