Best & Top Rated Monthly Income Plans (MF – MIPs)
Are you looking for that investment which can offer higher return than your Fixed Deposits? Are you searching for a better investment avenue to invest lump sum money for your short-term financial goals?
Then, Monthly Income Plans (MIPs) offered by Mutual Funds are one of the best investment options for you. MIPs can provide better returns than Bank Deposits / Post office Savings Schemes, but you should be willing to take slightly higher risk.
MIPs are suitable for risk-averse investors who do not want to take high risk (or) who do not want to invest in Equities or Equity oriented products, but can afford to take low or medium risk.
What are Monthly Income Plans (MIPs) ?
Monthly Income Plans (MIPs) are primarily ‘Debt oriented schemes’. These funds invest in a mix of equity and debt in the proportions of 20:80 or 30:70 or other proportions of similar kind. The objective of these funds is to provide enhanced regular returns to risk-averse investors by taking small positions in equity assets.
The major chunk (70 to 100%) of fund corpus is invested in interest yielding Debt instruments like ‘commercial paper, certificate of deposits, government securities, treasury bills etc., The remaining portion ( 0 to 30%) of the fund corpus is invested in Equity securities (stocks / shares).
The debt portion ensures stability, safety and consistency, while the equity instruments in the portfolio boost the returns. MIPs are market-linked products (to the extent of their equity portfolio).
Generally MIPs fall under Hybrid – Debt category of mutual funds. Depending on the percentage of equity exposure that MIPs take, they can further be classified into MIP Aggressive or MIP Conservative Plans.
MIPs which invest in equity securities in the range of 15% to 30% can be treated as “MIP Aggressive Plans” (Hybrid – Debt oriented aggressive schemes). These MIPs may offer slightly higher returns when compared to “MIP Conservative schemes”. But, do note that the improved returns come at ahigher risk.
Do Monthly Income Plans provide regular income?
MIPs aim to provide investors with regular pay-outs (through dividends). But, it is not mandatory for the mutual fund MIP scheme to provide regular income, as dividends are paid at the discretion of the fund house and subject to availability of distributable surplus.
Monthly Income Plan & options
- MIP Dividend Option (Income option) – MIP’s with dividend option provides you an income in the form of dividends. The dividends received by the investor are tax-free. The mutual fund company deducts DDT (Dividend Distribution Tax) at the rate of around 28% and then pays you the net dividend amount.
- MIP Growth Option – If you select ‘growth’ option, you will not receive any payments(dividends). You will get your returns only on selling the units. Since the fund does not pay out any dividends the NAV is much higher than that of the dividend option for the same fund or scheme. If you do not want regular income then you may opt for ‘growth’ option.
Top 3 Best MIP Mutual Funds in India (Conservative plans)
Below are the top rated Hybrid – Debt oriented & Conservative MIP schemes. (Returns given in the below table are for regular schemes)
1) SBI Magnum MIP Floater Fund – This fund has around 13% exposure to equity securities. It has generated returns of around 10.5% in the last five years. But fund has high expense ratio. If units are redeemed within 540 days after the allotment then exit load of 1.5% is applicable. This fund has ‘low risk’ grade and ‘above average’ return grade (as per valueresearchonline.com). This fund’s ‘Direct’ scheme has generated around 16.1% in the last one year (Regular scheme has given 15.4% return).
2) Birla Sunlife MIP II Savings 5 Fund – This fund has around 10% exposure to equities (stocks). The expense ratio is reasonable when compared to SBI fund. This fund also has ‘low risk’ grade and ‘above average’ return grade.
3) ICICI Pru MIP Scheme – It has around 14% exposure to equity and the remaining portion of the fund corpus has been invested in debt securities or in cash. This fund has ‘average risk’ grade and ‘above average’ return grade.
Top 3 Best MIP Schemes – Aggressive plans
Below are the top rated Hybrid – Debt oriented & Aggressive Monthly Income Mutual Fund schemes.(Returns given in the below table are for regular schemes)
1) Birla Sunlife MIP II Wealth 25 Plan – This has around 30% equity exposure and is the main reason for fund’s out-performance. If your investment horizon is around 2 to 3 years, you may consider investing in this fund. This fund has ‘below average’ risk grade and ‘above average’ return grade. The direct scheme of this fund has generated return of around 22% in the last one year (regular scheme – 20.7%).
2) ICICI Prudential MIP 25 Plan has 22% exposure to equity. The direct scheme of this fund has generated return of around 18% in the last one year.
3) Reliance MIP has 20% exposure to equity. It has low expense ratio. The direct scheme of this fund has generated return of around 18.2% in the last one year.
Important Points to ponder about Mutual Fund MIP Investments :
- The performance of MIPs is greatly affected by interest rates in the economy (as majority of the fund’s corpus is invested in fixed income securities). So, MIPs tend to perform well when the interest rates fall (when there is a downward trend in the interest rate cycle). You can observe that MIPs (as listed in the above TOP MIPs tables) have performed well in the last one year or so, as RBI started to cut interest rates. I believe that MIP schemes may continue to perform well in this year too.
- If you have a lump sum amount which needs to be invested for say 1 to 3 years then MIPs can be a better alternative to bank fixed deposits.
- You can also create SIPs in MIPs to realize your short-term goals.
- MIPs can be a decent bet if you are looking for regular income. You can opt for monthly or quarterly or half-yearly pay-out options.
- Do watch out for ‘Exit Loads’, as most of the MIP Schemes charge an exit load of around 1% if you redeem the units in less than one year of holding.
- Mutual Fund MIP Schemes are treated as Debt oriented schemes (non-equity funds). So, the Long Term Capital Gains (LTCG) taxes are applicable on the units which are held for 3 years or more. Short Term Capital Gains (STCG) taxes are applicable on the units which are held for less than 3 years. LTCG tax rate on MIPs is as per the investor’s income tax bracket and STCG tax rate is at 20% (with indexation).
- If you opt for dividend option then any dividend income received from Monthly Income Plans istax-free in the hands of investors.
- I believe that the ideal investment horizon in MIPs can be around 2 to 3 years.
There are few other alternatives to MF MIPs like Arbitrage funds, Fixed Maturity Plans (FMPs), Post office Monthly Income Plan etc., But, I believe that Mutual Fund Monthly Income Plans can be a better option for a conservative investor who is looking for better returns by taking limited exposure to stock market. MIP schemes offered by mutual funds are definitely worth considering.
Reference:
pmjjby scheme
ReplyDelete