A Little about Investing in Monthly Income Plans

The recent industry figures indicate a rising interest in Monthly Income Plans (MIPs). Several data results show that in the previous quarter investment in MIPs showed an increase of 16%. This was the time when the industry’s assets under management (AUM) reduced by around 12%. Looking in detail at the market shares of MIPs, one can clearly see that the growth has been around 30 percent, form the initial 2.2% back in April to the 2.9% which was in June. Now look at some factors about investing finances in MIPs and the risks it holds.

  • Investing in MIPs
    The major reason to invest in a monthly income plan is to aim at capital appreciation through the debt component. Along with that, the growth and higher returns through the equity component also matters. The difference between an MIP and a balanced fund is that, monthly income plans in India have higher asset values.

    All the best monthly income plans offer substantial growth, monthly dividend, and quarterly dividend options. These dividend options are further bifurcated into dividend payouts and reinvestment sub-options. Out of these, the monthly dividend option requires higher initial investment.
  • Risk
    Unlike bank deposits or postal monthly income schemes, the monthly income plans do carry minor risk of capital depletion. Though this risk may be a little lower than the one with pure equity schemes, it is still much higher than that of pure debt schemes.

    The MIPs are rated generally as moderate to low risk investment vehicles. While the schemes’ potential downside is restricted because of the large debt component, also the volatility is higher compared to than that of a pure debt scheme. This is due to the equity investments, as well as short-term volatility, due to the debt instrument calls that the fund manager may make.