Today, in India, you have plenty of investment options to choose from based on several factors like risk appetite, investment goal, expected returns, etc. Considering these factors play a vital role in shaping your investment portfolio and meeting long-term financial and investment objectives.
If you want to invest in a low-risk investment instrument that provides stable but regular returns, you can consider investing in MIPs or Monthly Income Plans. Many financial experts and investment gurus worldwide have corroborated that MIPs are a much better alternative to traditional fixed-income investment options like fixed deposits, senior citizen savings schemes, government bonds, etc.
What are monthly income plans?
Monthly Income Plans are basically debt-oriented funds that have a significant portion of investments in debt instruments and a small exposure to equity funds and other equity-related instruments. In MIPs, investments are made in corporate bonds, government bonds and instruments of similar nature that are low-risk and provide good returns.
The income you get from MIPs is usually in the form of dividends or interests. And this income can be considered an alternate source of income. Typically, monthly income plans have different maturity dates and risk profiles. The ideal monthly income plan is one that focuses on establishing favourable returns and risk combinations.
Types of Monthly Income Plans
Monthly income plans, which are similar to savings plans, allow you to invest a small amount periodically, and you get valuable returns from them in the long run. MIPs are broadly of two types, i.e., dividend-oriented monthly investment plans and growth-oriented monthly income plans.
As the name suggests, in the dividend-oriented plan, the income you get is in the form of dividends. Whereas, in growth-oriented plans, the accrued earnings are reinvested in different funds, which eventually generate a higher corpus.
Benefits of Monthly Income Plans
Low-risk investment option
The investment risk in monthly income plans is much lower than other investment instruments, as a significant portion of the investment is in debt instruments.
Typically, monthly income plans have a lower expense ratio than the funds that are actively managed. This is because MIPs have a fixed proportion of stocks and debts and the fund managers have to manage only a limited number of funds.
Flexibility to diversify investments
One of the most significant features of a monthly income plan is diversification. You can easily invest in a mix of debt and stocks of your choice and also increase or reduce the portion of investment in different funds to suit your changing goals and risk appetite.
Inflation is growing at a significant rate, and it not only has a significant impact on purchasing power but also on the returns on investments. However, monthly income plans have the edge over pure debt investment schemes as they can be used as a hedge against inflation. The returns from MIPs can help you beat inflation because of the equity component of the fund.
Offer better liquidity than traditional fixed-income plans
The monthly investment plans offer better liquidity than the fixed-income investment instruments because most of them have a minimum lock-in period.
With so many excellent benefits of monthly income plans, it is a must-have in your portfolio, especially if you want to take a risk-averse investment approach.