Monthly income plans or MIPs typically signify mutual fund schemes, that can give you returns every month.
What are actually MIPs?
MIPs of mutual funds are basically debt-oriented schemes that invest in a mix of debt and equity in the ratio of mostly 80:20. The funds aim at providing better and regular returns to risk-averse investor class by partaking small investments in equity class.
Major portion of funds is invested in debt instruments that include certificate of deposits or CDs, commercial papers, bonds, treasury bills, government securities. The remaining corpus is invested in equity asset class.
It should be noted that MIPs that are long-term products which should be held for over three years.
MIPs in last few years have lost their sheen off to other alternative products
In last few years, mixed performance of MIPs, changes in taxation structure and with other available alternatives, MIPs have lost their sheen. Higher dividend distribution tax of 25% is now applicable on the debt fund categories; and as over 65% of the MIP investment is in debt securities at any given time, the rate shall apply on monthly dividend received.
Further, including 10% surcharge and cess, DDT comes to be 28.84%, so the net return for the investor lowers substantially.
On the capital gains front, long term capital gains for a debt fund shall be charged @ 20% with indexation and the period for its holding was increased from earlier one year to three years. Any position squared off before this time shall be subject to short-term capital gains tax
There can be retired folk who also look at monthly income from fixed deposits. We have therefore selected a host of fixed deposits of companies along with the monthly income plans of mutual funds to suit the needs of investors.
We are recommending a FD and not an MIP, based on the assumption that the reader is looking for monthly income. Shriram Transport is yet another AAA rated deposits that gives an interest rate of 7.95 per cent on its monthly income fixed deposits for 60 months. So, you need to keep the deposit for 5 years, if you want decent monthly income. In all other tenures the interest rate is lower. Fixed deposits from companies as maybe noted are not safe. There is a TDS that is applicable if the interest amount crosses Rs 5,000.
Bajaj Finserv is a AAA rated fixed deposit that offers you a monthly interest rate of 7.77 per cent on the 36-60 months deposit. These are very safe deposits, since they come from the Bajaj stable. Also, they have been rated AAA, indicating a very high safety in payment of interest and principal amounts. This is a good investment if you are looking at one of the best monthly income plans. Most of the other schemes of Bajaj Finserv generate a lower interest rate. So, by far this is the best.
Birla Sun Life Monthly Income Plan II - Wealth 25 Plan
This is a hybrid fund, that parks its money in debt and equity and generates a solid return. In the last one year the fund has generated a return of almost 25 per cent. This is because its portfolio is heavily skewed into solid equity shares and reputed debt instruments. The fund has an NAV of Rs 35.17 under its monthly income plan. The fund is also heavily invested in government securities. You can also invest in the fund with a small SIP of Rs 1,000, after the initial investment of Rs 1,000. The initial amount through SIP is Rs 5,000. One of the best monthly income plans currently. It must be noted that the dividend so received is tax free in the hands of the investors.
SBI Magnum Monthly Income Plan - Floater
This is another fund with a good monthly income plan or MIP. The fund has generated a return of 12 per cent in the last one year. The fund has large investments in government dated securities and also stocks like Maruti, Equitas Holding and Titan. The fund pays a dividend monthly, quarterly and yearly. the yearly dividend plan of the fund is slightly above Rs 15. This is a good fund to get monthly income and is one of the better MIP plans. The balance and equity of equity and debt is a good play to make money from the monthly income plan.
Franklin India Monthly Income Plan
Like other peers the fund has invested bulk of the amount in government dated securities, with exposure to equities as well for optimal returns. Franklin India Monthly Income Plan has an NAV of around Rs 13.60 under the dividend quarterly plan. A large part of the fund is in safe debt investments. One of the better monthly income plans to consider if you have a long term view.
Reliance Monthly Income Plan
The Fund has performed well in the last one year, giving decent returns. The fund has the largest exposure to government dated securities. Bulk of the assets are invested in them. Reliance Monthly Income Plan also has exposure to good quality shares as well as safe debt instruments. Remember, the dividend plans of Monthly income plans are free from income tax, so that is a big advantage. A good fund that is relatively safe.
SBI Magnum Monthly Income Plan - Floater
The one year return of the fund is 17.25 per cent. The fund has a large exposure to certificate of deposits floated by UCO Bank, Oriental Bank of Commerce and Vijaya Bank. It also has exposure to shares of companies like Maruti Suzuki, HPCL and NRB Bearings. Again, as we mentioned earlier this is a good fund to park your money for long term investment for regular monthly income.
IDFC Monthly Income Plan
The Fund has generated a return of almost 14.95 per cent in the last one year. Like other peers bulk of the assets under management are deployed in government dated securities. IDFC MIP also has exposure to stocks like HDFC Bank, Maruti Suzuki and SRF.