Mutual Fund Unlocked: What is a Monthly Income Plan?

Many of the mutual fund investors who have retired or are planning for a retirement usually seek the option of gaining a regular income from their investments to meet their day-to-day expenses. For these ultra-conservative investors who want minimum exposure to equities can go for monthly income plans (MIP).

The Monthly Income Plan is considered a better option among the various types of mutual funds for a regular income. It involves investing in Debt Mutual Funds with a monthly growth as well as dividend option. The investment approach of these funds are very conservative, they allocate only 10-20 per cent of their corpus into equities and the remaining are invested in bonds and debt securities. With this safer approach the returns are lesser than that of a pure equity schemes, but are enough to beat the inflation. These funds protect downside risks with the limited exposure to equities.

Investors should be aware that though the names of these plans suggest monthly income, they don't assure the same. Under the dividend option of these schemes, a fund house can offer regular dividends out of the distributable surplus only.

MIPs can be seen as good source schemes for systematic transfer plans (STP) into equity funds for aggressive investors. In STP, a fixed amount will be transferred to another respective scheme on a predetermined day of the week or month or quarter. On the taxation front, these schemes come under debt schemes as a major portion is invested in the debt securities.