What is monthly Income Plan (MIP) mutual fund?

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Monthly income plan are debt funds. And you can invest 5% to 40% in equity and balance funds. But it is related debt instruments. These MIP plan provide regular dividend payout either by monthly, half yearly or quarterly. Hence, see best international mutual fund to invest in India. Therefore see best monthly income plan in banks. You can see MIP mutual fund taxation.

Key features of MIP mutual funds

MIP mutual fund is one best option to invest lump sum. Because, they will provide regular payout in form of dividend. But they offer high returns compared to bank FD’s. MIP returns are depends on volatile. Because, as it invest in part of savings in equity.

Under MIP, tax returns are high as they are classifying under debt schemes. And returns are taxed with or without indexation method. Like any other mutual fund MIP are available in growth and dividend option. Hence, you can see Invest in ULIP low cost

How do Growth and Dividend option work in MIP mutual funds?

In you invest in MIP mutual fund through dividend option. And you will get regular dividend either by monthly quarterly or half yearly. These dividends are paid only from your capital approval. If you want regular income you must opt for dividend option.

However, if you invest in MIP mutual funds through growth option. You will not get any regular payouts. Therefore your capital will get appreciated till you redeem or sell your MF units. If you do not want regular income you can opt for growth option.

MIP mutual funds are taxed how?

Monthly income plan are taxed like any other debt mutual funds. And MIP mutual funds are taxed based on growth or dividend option chosen by you.

Furthermore, if you have opted for dividend option. Your fund house needs to pay Dividend Distribution TAX (DDT) to govt before they pay dividend to you. This means these are tax free mutual funds.

So if you opted for growth option. This means when you sell your mutual funds units your capital gains are taxed like any other debt fund schemes. If these are sold within 3 years short term gains applicable.  And you need to club this income with your income. Therefore you need to pay income tax based on your income tax slab.

As per above, if these are sold after 3 years long term capital gains are applicable. And returns are taxed at 10% without index and 20% with index. You can check Bond Funds definition

Can you opt for Systematic Withdrawal Plan (SWP) in MIP mutual funds?

Therefore main drawbacks of MIP in mutual funds are they do not provide guarantee regular income. In case returns are low these schemes do not declare dividends. Hence, you can get doubt if there are any alternative in such case. So you can opt for Systematic Withdrawal Plan or growth option in MIP mutual funds.

Let explain with an example. You can invest Rs 5 lakhs in MIP mutual funds with growth option. Assume that you are getting 15% returns per annum and 0.84% per month. Now if you opt for dividend option you may not get Rs 4,170 every month as returns. In such case, you can opt for SWP.

Which is better in MIP mutual funds dividend option or systematic withdrawal plan?

Here you can see what dividend option offers

You will pay capital appreciation only. In case there is no capital appreciation no dividend is paid. Therefore tax on dividends is paid by MF AMC directly of 12.5%. And amount received in hands is tax free. Hence, depending on returns mutual fund house will decide to pay dividends.

What is SWP option offer see here

If you decide to invest Rs 5000 to 10000 per month. If you have capital appreciation, such payout will come from your returns. Otherwise it can be withdrawn from capital. However, you need to pay short term capital gain or long term capital gain depends on date of payout. If you opt for payout after 3 years long term capital gains can be paid.

Factors of MIP in mutual funds

In addition, banks offer guarantee income. However, MIP doesn’t offer fixed returns. Moreover, this drawback can be removed by opting for SWP in MIP mutual funds. MIP returns are volatile and may not pay dividend sometimes. Hence, MIP mutual funds carry some factor of risk as it invests up to 30% in equity.

Monthly Income Plan mutual fund provides regular payouts. And they are tax efficient. If you are worry about not getting regular payouts you can opt for SWP in MIP mutual funds. This way you can invest lump sum in your mutual funds to get returns of 10% per annum.

Hence, if you observe, some of funds gave as high 16% returns in mutual funds. This is double interest rates offered by Bank FD’s.

Finally, see best mutual fund platform to invest. Therefore check debt mutual funds definition. And you can also check Top 100 monthly Income Plan mutual fund to invest in India. See Monthly income plan calculator. Hence, for better understand see best investment plan for monthly income.

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