If you are looking for monthly income return by investing one time & expecting a return better than Fixed Deposits without taking much risk, then the solution to all your anxieties is Monthly Income Plans (MIP).
Monthly Income Plans are hybrid investment options which invests majority of their portfolio holdings in debt oriented instruments like Government securities, bonds, certificates & around 20-25% of their holdings in equity oriented instruments. Through this plan, one can choose to opt for monthly, quarterly or yearly dividends though fund managers prefer to focus on disbursing monthly dividends as per the name suggests.
Risk Free???
The very important question in every investor’s mind-Are Monthly Income Plans are risk free. In one word, I can say “NO” If you are looking for ultra low risk or without risk instruments, then don’t think twice, go to a bank & enjoy 8% returns & sit at home.
But if you are looking for 12% returns by investing 25% of the Portfolio in equities & that too managed by professional experts, look for Monthly Income Plans.
Taxation
Dividend Income earned on Monthly Income Plans are tax free in the hands of investor but the Dividend distribution tax is payable on MIP which is already adjusted in NAV itself, where as interest earned on Fixed Deposits is taxed. Now-a-days, banks are deducting TDS of 10-20% out of interest income earned in FD. So you had to again get into the stuff of Income Tax Refund.
Types of MIP
There are three types of Monthly Income Plan. Monthly Income Plans offered by
- Banks
- Post Office
- Mutual Fund Houses
Exit Load
Monthly Income Plans do have an exit load if a investor withdraws his Investment within one year whereas Monthly Income Plan doesn’t attract any load for investors who want to invest for more than one year.
Finally, is it for you???
If your Age is above 45-50 & ready to take little more risk than debt instruments or Fixed Deposits or if you are a Retired professional, then Monthly Income Plan is the best suited product for you. A person who is nearing retirement can opt for Monthly Income Plan also. But if you have a young blood & your risk appetite is quite high, then you may opt for a balanced fund & choose Growth option or go in for an Equity Diversified Fund.
– This article has been provided by Mayank Gupta, founder at wealth management company WealthBazaar.