Monthly Income Plan (MIP)

• Monthly Income Plan is a category of Debt Mutual Fund but a Hybrid Investment Plan.
• The difference between a debt fund and an MIP is that a debt fund is fully invested in debt securities, whereas in general MIP has the flexibility of investing in equity - up to 25 per cent.
• MIP is launched with the objective -to provide investors with a regular income.
Features
Objective: Regular Income and Capital Protection
Risk: Low
Investment Portfolio: In General not more than 20% of the portfolio in equity and the balance in Debt
Who Should Invest: Moderate/Conservative Investors
Investment Horizon: More than 1 year
Tax Implication (2009-2010): Dividends Tax Free.
Short Term Capital Gains: 30.90%.
Long Term Capital Gains Tax: 10.30% without Indexation & 20.60% With Indexation.

Benefits of investing in MIPs
• MIPs come with highly rated debt papers and flexibility in managing the modified duration which will be quite useful in the current interest rate scenario.
• MIPs come with relatively low Standard Deviation as compared to gilt funds and almost at par with income funds. This gives them the ability to earn better risk adjusted returns.
• Possibility of stable & regular income: MIPs declare dividends on a periodical basis, whenever they have distributable surplus.
• Tax Benefits: Investors in the higher tax bracket get the benefit of lower taxation of debt in 1 year and above period as he gets the indexation benefits.
Diversify your portfolio with MIPs
It is very difficult to choose asset classes that will outperform in this kind of a scenario as the change in leadership has been pretty quick and unpredictable.
Sticking to any one particular asset class over this period (other than Gold in general) would have led to severe underperformance either absolute or relative.
Hence, the situation demands that your portfolio be a judicious mix of asset classes in order to consistently deliver above average returns. But a general investor cannot be expected to be able to build and manage such a diversified portfolio.
This is where MIPs, is considered as a good investment option.

Ideal Investors:
• MIPs are suited for investors with a low to moderate risk appetite.
• MIPs' target segment includes retired people or those nearing retirement.
• Investors who want to diversify their portfolio.
• MIPs also appeal to investors in higher tax brackets for their ability to deliver more competitive post-tax returns vis-à-vis avenues like fixed deposits.