A Monthly Income plan or MIP can best be described as a debt oriented mutual fund which gives you income, in the form of dividends.
They are debt oriented funds that invest in debt instruments like debentures , corporate bonds, government securities etc.
It has most of its money in debt and rest in equity and cash and you can decide how you want to receive income quarterly, half-yearly or annually.
MIPs can be viewed as a financial instrument that assure some income to their unit holders every month without much risk.
Many of these schemes not only declare dividend at regular intervals, even the dividend amount declared varies accordingly.
Most MIPs offer a growth option too which make them more of the exception than the rule when compared to other investment options.
This means that unit holders are exposed to NAV related risk with their primary objective of earning a monthly income according to prevailing market conditions.
The fluctuations in the equity market are more than that in the debt market, a smaller proportion of equities may serve as a measure of capital protection.
They have an advantage on the tax compared to other fixed income options, as unlike interest income which is taxed according to the income tax slab, the dividend distribution tax levied is lower than the income tax slab of most investors and long term capital gains too are charged at a concessional rate
They are debt oriented funds that invest in debt instruments like debentures , corporate bonds, government securities etc.
It has most of its money in debt and rest in equity and cash and you can decide how you want to receive income quarterly, half-yearly or annually.
MIPs can be viewed as a financial instrument that assure some income to their unit holders every month without much risk.
Many of these schemes not only declare dividend at regular intervals, even the dividend amount declared varies accordingly.
Most MIPs offer a growth option too which make them more of the exception than the rule when compared to other investment options.
This means that unit holders are exposed to NAV related risk with their primary objective of earning a monthly income according to prevailing market conditions.
The fluctuations in the equity market are more than that in the debt market, a smaller proportion of equities may serve as a measure of capital protection.
They have an advantage on the tax compared to other fixed income options, as unlike interest income which is taxed according to the income tax slab, the dividend distribution tax levied is lower than the income tax slab of most investors and long term capital gains too are charged at a concessional rate
The disruption of your regular source of income due to any mishap can lead to disastrous situations especially if someone has a single breadwinner in the family.
The chaos because of the mishap is added by the financial uncertainty due to loss of the income and most people are in the misconception that a regular insurance policy which pays out a lump sum amount at the time of claim will fulfill all their financial requirements,
You need to remember that a major portion of your claim amount is spent on the recovery of the mishap and you are left with no any stable source of income for your future.
A monthly income plan can make a difference as it is an investment gives you an alternate source of income for you and your loved ones.
Government regulations demand that dividend can be paid only from surpluses and not from the capital investment.
This means that the dividends can be declared from earned income only and not from the initial capital value .
This makes sure that they can not show to the world that they are constantly giving income in case they have not done well.
While the aim of MIPS is to regularly declare dividends, it might happen at times, that they do not declare any dividends because of bad performance.
There is no regulation on the MIP’s part to declare regular dividends so if you don’t get your income once in a while just because it’s a debt oriented product, It does not mean that they are reliable.
Even MIPs can give negative return, but in extreme cases and the debt portion is influenced by interest rates.
When the interest rate falls, the NAV rises as price of bond increases and when interest rate rises, NAV falls.
At such times the equity portion of the fund helps to maintain the return, interest Rates and how they affect Mutual funds .
MIPs offer lucrative commissions to agents in Equity funds and due to this it becomes easy to sell MIP’s as they can be labelled as the best investment option that is available in the market today.
The chaos because of the mishap is added by the financial uncertainty due to loss of the income and most people are in the misconception that a regular insurance policy which pays out a lump sum amount at the time of claim will fulfill all their financial requirements,
You need to remember that a major portion of your claim amount is spent on the recovery of the mishap and you are left with no any stable source of income for your future.
A monthly income plan can make a difference as it is an investment gives you an alternate source of income for you and your loved ones.
Government regulations demand that dividend can be paid only from surpluses and not from the capital investment.
This means that the dividends can be declared from earned income only and not from the initial capital value .
This makes sure that they can not show to the world that they are constantly giving income in case they have not done well.
While the aim of MIPS is to regularly declare dividends, it might happen at times, that they do not declare any dividends because of bad performance.
There is no regulation on the MIP’s part to declare regular dividends so if you don’t get your income once in a while just because it’s a debt oriented product, It does not mean that they are reliable.
Even MIPs can give negative return, but in extreme cases and the debt portion is influenced by interest rates.
When the interest rate falls, the NAV rises as price of bond increases and when interest rate rises, NAV falls.
At such times the equity portion of the fund helps to maintain the return, interest Rates and how they affect Mutual funds .
MIPs offer lucrative commissions to agents in Equity funds and due to this it becomes easy to sell MIP’s as they can be labelled as the best investment option that is available in the market today.
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