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Wednesday, January 1, 2014

What is a Monthly Income Plan or MIPs?

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What is a MIP?

Monthly Income Plan popularly known as MIP is a debt oriented hybrid mutual fund product. In MIP Equity is allocated in between 5% - 25%, and the balance would be the debt allocation. The Investment objective of Monthly Income plans read as "To generate regular returns through investment primarily in Debt and Money Market Instruments, also to generate long-term capital appreciation by investing a portion of scheme's assets in equity and equity related instruments"

 

Though the objective is to provide regular returns, but the regularity and quantum is not assured. Advisors/Planners do advise on MIP to supplement the goal of regular returns and also to provide some tax efficiency in client's profile. MIPs also get advised in growth option if client portfolio and risk profile demands.

 

Monthly Income Plans (MIPs) are meant to provide monthly income to the investor through regular dividends but you can also create a stream of income through Systematic withdrawal plan (SWPs). Dividends results in reduction of NAV and are subjected to Dividend distribution tax on the other side SWP leads to reduction of unit capital of investment as withdrawal happens from the existing units only. Now the question is which works better in Monthly Income Plans – Dividend payout or SWP.

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