Skip to main content

Top 5 Mutual Fund Monthly Income Plans (MIPs)

Download Tax Saving Mutual Fund Application Forms

Invest In Tax Saving Mutual Funds Online

Buy Gold Mutual Funds

Leave a missed Call on

94 8300 8300

 

Mutual Fund Monthly Income Plans (MIPs)

 

Top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS) in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Mutual Fund MIPs have the following advantages compared to Post Office MIS

  • Liquidity: Mutual fund MIPs are more liquid than Post Office MIS (POMIS). For premature withdrawals, Post Office MIS are subject to a deduction of 2% of the amount invested if such a withdrawal happens within three years of investment. After three years, the amount of deduction is 1% of the amount invested. MIPs, on the other hand, charge 1% exit load for redemption of units within one year of allotment. There is no exit load, if the units are redeemed after 1 year

 

  • Tax Consequence: The interest income from POMIS is taxed as per the income tax slab of the investor. If the investor is in the highest tax bracket, their monthly income for Post Office MIPs will be taxed as 30.9%. On the other hand monthly dividends from the mutual funds MIPs are tax free in the hands of the investor, even though the fund has to pay a dividend distribution tax. Due to the change in the methodology of calculation of Dividend Distribution Tax (DDT) announced in this budget, the effective dividend distribution tax paid by the fund will increase. In the previous tax regime, DDT was levied on the net dividends (after DDT) paid to the shareholders. As per this Budget, DDT will be levied on the gross amount, i.e. the dividends declared before DDT. This will certainly impact the returns for the MIP investors. However, mutual fund MIPs will still be more tax efficient than Post Office MIS, for investors in the highest tax bracket.

 

  • Maximum Investment: The maximum investment limit in Post Office MIS is only Rs 4.5 lacs in one account in POMIS, or Rs 9 lacs if the investor is investing in a joint account. There is no such limit on investments in MIPs. Therefore, it makes more sense for investors with higher investible corpus to invest in mutual fund MIS.

However, mutual fund MIPs are not as popular as Post Office MIS due to the following drawbacks:-

  1. The distribution reach of mutual MIPs is nowhere as extensive as that of Post Office MIS. The postal network in India is vast and reaches even villages. The distribution network of Mutual Fund is quite limited compared to postal network.

 

  1. Even though monthly dividend options of MIPs aim to pay dividends each month, they do not guarantee monthly payments to investors. In equity market downturns, it is common for mutual fund MIPs to miss out on monthly dividends. Even if they pay monthly dividends to the investors, the amount of monthly dividends is not assured. Post Office Monthly Income Scheme (POMIS), on the other hand, offers guaranteed 8.5% annualized returns to investors.

These drawbacks can be somewhat addressed by the mutual fund industry by expanding its distribution reach and through sustained investor awareness and education programmes. If investors are willing to take small amounts of risks and sacrifice guaranteed monthly income then mutual fund MIPs can provide greater returns in comparison to post office MIS. In this article, we will review the top 5 Monthly Income Plans, based on the most recent CRISIL ranking (March 2014).

CRISIL ranks equity funds based on several parameters like average 3 year annualized returns, volatility, portfolio concentration risk (both industry and company), debt asset quality and portfolio liquidity (both debt and equity) risk. On each of these parameters, each scheme is accorded a cluster rank (from 1 to 5) relative to its peer group. To derive a composite cluster rank, CRISIL has assigned different weights to each parameter, with average 3 year annualized return given the highest weights at 50%, volatility 30%, industry concentration risk 10%, company concentration risk 5% and liquidity risk 5%. The period of analysis is broken into four periods, latest 36, 27, 18 and 9 months. Each period is assigned a progressive weight starting from the longest period as follows: 32.5%, 27.5%, 22.5% and 17.5% respectively.

Review of Top 5 Mutual Fund Monthly Income Plans

  • Birla Sun Life MIP II - Wealth 25 Plan (CRISIL Rank 1): This scheme was launched in Apr 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme.

The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 29% equity, 67% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.

  • UTI MIS Advantage Plan (CRISIL Rank 1): This scheme was launched in Dec 2003. Please see the chart below for the one, two, three and five years annualized returns from this scheme.

The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 56% debt, 14% money market and 5% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.

  • Canara Robeco Monthly Income Plan (CRISIL Rank 2): This scheme was launched in July 1988. Please see the chart below for the one, two, three and five years annualized returns from this scheme.

The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 67% debt, and 8% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.

  • HSBC MIP Savings (CRISIL Rank 2): This scheme was launched in Feb 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme.

The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 25% equity, 69% debt, 3% money market and 3% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.

  • ICICI Prudential MIP 25 (CRISIL Rank 2): This scheme was launched March 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme.

The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.

Conclusion

Top performing monthly income plans from reputed fund houses, have provided good monthly income especially compared to post office MIS. Investors who are willing to take a bit of risk, can opt for mutual fund MIPs for getting higher returns associated with the equity portion of the portfolio mix and the greater tax efficiency associated with MIPs for investors in the highest tax bracket. Investors should consult with their financial advisers, if mutual fund MIPs are suitable for their income needs.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...
Read more

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...
Read more

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
Read more

Gold: It is safe & secure

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now