Opt for Monthly Investment Schemes to avail a steady stream of revenue and to enjoy the benefits of both equities and debts. Gain a comprehensive view of the different types of MIPs and take a look at the benefits they offer.
A savings plan that offers you attractive returns periodically, while beating inflation? Does that sound too good to be true? Well no, read on to find more about Monthly Investment Plans (MIPs) that are an excellent investment option while providing you with steady returns.
You would have heard that SIPs (Systematic Investment Plans) are the best way to grow your income. But are you aware of MIPs that help you derive a steady stream of revenue with tax-friendly options?
If no, let’s get started!
First things first, what are MIPs?
A Monthly Investment Scheme or Plan (MIP in short) is a debt-oriented hybrid mutual fund. The exposure to stocks is kept minimal, usually under 20%. While the name mentions, “Monthly,” it’s a misnomer. These funds do not provide you with dividends on a monthly basis. But, rather the distribution of dividends is dependent on the availability of the surplus.
Two Major Types of MIPs
There are two main options when it comes to MIPs. They are Growth and Dividend.
- Dividend Mode (Payout)
- In the dividend option, the investors receive a regular dividend quarterly, semi-annually or annually depending on their preference. However, you must remember that though the plan is named as “Monthly,” the fund houses are not required to declare the dividends every month. The payouts depend on the availability of the scheme’s surplus.
- Growth Mode (Reinvestment)
- In this mode, the gains you receive from the fund are reinvested back into the scheme. This helps your capital to appreciate in value.
Top 4 Reasons why MIPs are a Smart Choice
- Lower Risk Exposure
Unlike regular equity-oriented debt funds that have high inherent risks, MIPs have a relatively low-risk profile. This makes it a highly lucrative option for conservative investors, retirees and others who can’t afford to take risks. They are less volatile when compared to equity funds but slightly higher in risk compared to pure debt funds. This makes them an attractive option for average investors.
- Enjoy Tax Benefits
All the premiums you pay for a MIP and the policy benefits that you receive via the scheme are tax-free since these funds are declared as debt-oriented funds. However, you must remember that the fund houses deduct DDT (Dividend Distribution Tax) for the dividends they pay you on a regular basis. To avoid this taxation, you can opt for the growth mode of MIPs.
- Better Returns when compared to Pure Debt Funds
MIPs are highly suitable for individuals who want higher returns that debt-oriented funds provide but don’t want the risks of equity-based funds. Since MIPs are hybrid funds that have a mix of debts and equities; they offer you the best of both worlds.
- Lump Sum Benefit on Maturity of the Plan
At the end of the scheme period, you can receive a lump sum that includes all the growth bonuses you have accrued over the years. This huge amount can help you to finance a significant milestone in your life if you time it correctly.
MIPs – A Better Choice for all Types of Investors
Irrespective of whether you’re looking for a plan that provides you with a steady stream of income or if you are seeking to grow your funds by reinvesting it, MIPs are an excellent investment scheme for all types of investors.