What is a 'Monthly Income Plan - MIP'

A Monthly Income Plan (MIP) is a type of mutual fund scheme that invests in debt and equity securities. An MIP aims to provide a steady stream of income in the form of dividend payments. Therefore, it is typically attractive to retired persons or senior citizens without other substantial sources of monthly income. Available to most investors,  MIPs are in frequent use for investors an India.

BREAKING DOWN 'Monthly Income Plan - MIP'

As a mutual fund scheme, MIP's asset allocation can vary. Some, for example, invest up to 32% of its corpus in equity securities. Others aim to keep this investment type as low as 10%. Regardless of the approach, the bulk of investments are in in debt securities to target steady returns with a portion dedicated to maximizing profits through equity exposure. The types of equities invested in vary as well. Some funds limit equity exposure by focusing primarily on small, medium or large-sized companies. Others will use a mixed approach. 

Even though these funds are called monthly income plans, MIPs do not guarantee monthly income. Investors may expect a steady stream of income when the market is strong but could see a downturn in Bear markets. The level of equity exposure is affected by market volatility. Since stock holdings are more prone to fluctuations in price, they are usually a limited portion of the entire fund.

MIP Mix of Investments

Investors need pay close attention to their income needs and risk tolerance when deciding whether to invest in an MIP. There is no obligation for the fund to make monthly dividend payments. When profits are weak, it may skip making payments altogether. In fact, the Securities and Exchange Board of India (Sebi) does not allow mutual funds to guarantee income or dividends. 

For the right investor, an MIP can offer steady income for retirement living. Problems arise when people reach retirement and spend their nest egg making random withdrawals of varying amounts to support their monthly expenses. A monthly income plan can deliver a stable sum of income each month, which allows for more accurate monthly budgeting. Careful monthly budgeting can help avoid the risk of over-spending. The same objective is present in an annuity

Taxing of Monthly Income Plans

In the United States, MIP funds are taxed using standard interest and dividend calculations. In India, an MIP is treated as a debt scheme for taxation purposes. Indian tax law applies this moniker to any fund that invests less than 65% of its assets in stocks. 

As with other funds, earnings from investments sold before three years are short-term capital gains. Short-term gains are counted as income and subject to the investor's income tax slab. Sales occurring after the three-year threshold, are long-term capital gains, taxed at 20% with indexation benefit.

  1. Monthly Income Preferred Securities ...

    Hybrid securities with both preferred stock and bond characteristics, ...
  2. Equity Income

    Equity income is primarily referred to as income from stock dividends. ...
  3. Investment Income

    Investment income is that coming from interest payments, dividends, ...
  4. Public Income Notes - PINES

    Unsecured, unsubordinated debentures issued by public companies, ...
  5. Growth And Income Fund

    Growth and income funds pursue both capital appreciation and ...
  6. Income Risk

    Income risk is the risk that the income stream paid by a fund ...
Related Articles
  1. Investing

    Meet Your Investment Objectives With Income Funds

    Discover the categories of income funds and the types of investors for whom they are appropriate.
  2. Investing

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
  3. Retirement

    Strategies For Withdrawing Retirement Income

    There are many ways to drawdown assets during retirement. Financial planners can provide options to baby boomers and others nearing retirement.
  4. Investing

    When to buy a mutual fund

    Doing a little research can help you find out if mutual funds are a good fit for your portfolio.
  5. Investing

    The Top 5 Equity Mutual Funds for 2016

    Understand how equity securities can enhance an investor portfolio, and discover the five best equity mutual funds to consider for 2016.
  6. Financial Advisor

    Top 5 American Funds for Retirement Diversification in 2016

    Discover five mutual funds from industry leader American Funds with high yields that are perfect for retirement savings diversification.
  7. Retirement

    3 Ways to Diversify Your Retirement Income Stream

    Including these different income streams will help satisfy your retirement needs.
  8. Financial Advisor

    Top 4 Conservative Allocation Mutual Funds

    Top-rated mutual funds in the conservative allocation category are offered by companies such as Vanguard, American Funds, T. Rowe Price and Thrivent.
  9. IPF - Mortgage

    What is Private Mortgage Insurance (PMI) and What Are My Options?

    PMI is a type of mortgage insurance that buyers are typically required to pay for a conventional loan when they make a down payment that is less than 20 percent of the home’s purchase price.
  10. Investing

    How Mutual Funds Are Taxed in the U.S.

    A look at how mutual funds are taxed and how investors can be more tax efficient.
  1. What's the difference between private mortgage insurance (PMI) and mortgage insurance ...

    Private mortgage insurance (PMI) is an insurance policy used in conventional loans that protects lenders from the risk of ... Read Answer >>
  2. How Often Do Mutual Funds Pay Capital Gains?

    Find out how often mutual funds distribute capital gains income, including the basics of how mutual funds work and why frequent ... Read Answer >>
  3. How Are Earnings And Income Different?

    Earnings is the profit a company has earned for a period. When investors refer to a company's earnings, they're typically ... Read Answer >>
Trading Center