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mutual fund monthly income

All you wanted to know about Mutual Fund Monthly Income Plans

by Holistic Leave a Comment | Filed Under: Mutual Funds

Myths about MIP

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Monthly Income Plans or MIPs seem like a good and wide umbrella which will protect the investors from the vagaries of the market weather. It is mostly PERCEIVED to be “a risk-free product which will deliver regular incomes month after month in an un-interrupted manner while the original investment remains safe and sound.”

Well, even if it may disappoint many, the reality is different, even MIPs can be erratic in its returns. But then it is better to be safe than sorry. It is felt that it is useful to be acquainted with certain facts about MIPs’.

Reality about MIP

By nature, MIPs are debt oriented mutual funds which provide regular income in the form of dividends. The constitution of MIP schemes comprise of debt instruments likes government securities, corporate bonds and debentures to the extent of upto 80% and the rest in equity and cash. The returns from the investment, i.e. the dividend amount is payable to the investor in a periodic basis ranging from monthly, quarterly, semi-annually and yearly.

MIPs don’t assure monthly income for investors. MIPs can skip dividends if they don’t have a surplus. In the past, MIPs have skipped their monthly dividends for a few months.

Here are some facts which the investor will find useful before opting for a particular MIP scheme.

MIP Options

There are primarily two options which MIP schemes offer to investors, the Dividend option and the Growth option. The dividend option provides income generated through dividends and distributed periodically as opted by the investor.

Investors may note that the dividend declared by the scheme is subjected to a Dividend Declaration Tax payable by the company and the net returns will be reduced by the quantum of tax paid. A Re. 1 dividend announced will get reduced to Re. 0.71 due to the 28.325% Tax applied on it.

The growth option on the other hand is one where the fund invested grows and no dividend payout is made. The principal along with the accumulated gains is available to the investor at the time of redemption.

MIP Features

The salient features of the MIP Scheme may be summarized as follows for the benefit of the investor:

    • Dividends can be declared only from the profits and not the capital:

The discerning investor will know that dividends are only payable on the surplus or profit generated by the scheme. Suppose the NAV of the fund rises from Rs.10 to Rs.11, then, the dividend is declared on the incremental NAV, i.e. Re. 1.

    • Regular Income is not guaranteed:

It is a common belief that MIPs will unwaveringly guarantee monthly incomes. This is a false perception; moreover regulations do not stipulate compulsory payout of dividends hence during bad times it is quite likely that dividend payout could be skipped.

    • Stock market and interest rates have a bearing on MIP’s performance:

As stated already, no investment in the financial market is risk-proof so it is wrong to assume that MIPs are unconditionally and permanently safe. Factors like interest rate fluctuations and stock market situations can adversely affect fund performance. During such times the equity part of the fund helps to counter the negative returns from debt funds.

    • High-commission structure propagates mis-selling:

Agents earn high commissions by selling MIPs. Commissions range from 1 % to 1.5 % for MIPs’ as against 0.50% to 0.75% for equities. Thus agents make a high pitch for selling MIPs and thereby promote them as ‘absolutely safe’ investment options.

MIP Taxation

On the taxation front, MIPs being debt oriented are governed by the same taxation principles. Any profit made by the investor through sale within 1 year is treated as Short-Term Capital Gain and is taxed in the same income-tax slab to which the investor belongs. Those in the higher tax brackets should thus avoid selling their investment in MIPs within the first year.

For sales after the first year, tax is payable in line with the Long Term Capital gains tax structure which is 10 per cent without indexation and 20 per cent with indexation.

Short Term and Long Term Losses can be set off against Capital Gains in the same year or within the next 8 years. This is a distinct advantage with MIPs when compared to Fixed Deposits (FDs).

Dividends earned by investors are totally tax free in the hands of the investor.

MIPs’ target investor group

Just as all food types do not suit everybody and all clothes do not go with all personalities, MIPs too are for a specific set of investors. The following three investor groups will benefit the most from MIPs:

  • Investors looking for regular investments
  • Conservative investors looking for good returns

Conclusion

Investors will find MIPs to be good investment option when compared to FDs but have to keep in mind that MIPs are also subject to market risks. To have long term success with your investments, having a well drafted financial plan will be of immense help. To create a sound financial plan, I strongly recommend you to take advantage of

If you have any comments or questions, write them in the comment box below.

Or are you interested in creating a Comprehensive Financial Plan for your financial goals?

Skip the queue by registering for your 30 Minute FREE Financial Plan Consultation. Click the ‘‘BOOK YOUR SLOT NOW!’’ button below. 

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Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
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Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
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30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
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Nellai B
Nellai B
26. June, 2021.
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