What are Monthly Income Plans?

Answer 1

Monthly income plans, or MIPs, as they are more popularly known, are a category of mutual funds that invest mainly in debt instruments. Only about 10-20% of the assets are allocated to equity stocks. But the very name - monthly income plan - is a bit misleading, as these funds do not guarantee a monthly income. Like any other mutual fund, the returns of this fund are market-driven. Though many fund houses strive to declare a monthly dividend, they have no such obligation. The fund house may opt to skip a month without a dividend depending on the market performance.

MIPs are launched with the objective of giving a monthly income to investors, but the periodicity depends upon the option chosen by the investor. These are generally monthly, quarterly, half-yearly and annual options. A growth option is also available, where the investors do not receive regular dividends, but gains in the form of capital appreciation.

Suitability

MIPs are suitable for conservative investors who want to earn marginally better returns than a debt-only portfolio. Conservative investors generally remain invested in fixed income instruments, but sometimes they need returns that are above the inflation by a few points. Obviously, equity exposure is the best way to provide this meaningful return over the inflation. A MIP typically invests bulk of its assets in debt, while a small equity exposure is maintained to earn something extra.