Monthly Income Plans – But are they safe?

Investment in stock market is both risky and profitable which makes it a double-edged sword in terms of wealth accumulation. Despite various success stories, there is no guarantee that it will make you rich within a time frame. In order to generate note-worthy profits from the stock market, you need to have a trading strategy and invest in sources which can give you returns more frequently. For starters, you can invest in Monthly Income Plans (MIPs).

What are MIPs?

In simple words, MIPs are hybrid mutual funds that invest 70-80 percent of the capital in debt instruments like debentures, government securities, etc. while the rest of the capital is invested in equity. The purpose of MIPs are to provide steady income to its investors periodically. MIPs are further bifurcated in two parts i.e. Dividend MIPs and Growth MIPs.

  • Dividend MIPs : In dividend MIPs, the investor gains profit from the dividend payout distributed by the companies. However, assuming that MIP returns will be constant can lead to disappointment, because dividends are profits that a company garners from its stock market performance and since stock market keeps fluctuating returns cannot be guaranteed.
  • Growth MIPs: In growth option, the investor does not pay dividends instead the profits gained from the investment are added to the NAV of the scheme. It is ideal for investors who are looking for capital growth and wealth accumulation.

Are they Safe?

Capital safety plays an important role in investments, but as MIPs involve equity investments, investors might be exposed to risks of the volatile markets which might affect their capital. However, it’s not all losses for the investor as part of their capital is invested in debentures which can overshadow the loss to some extent. MIP investments are ideal for retirees, housewives and people seeking some additional income as 10-12 percent profit can be a great deal for them.

If you are planning to invest in MIPs, it is recommended that you check the amount of capital the scheme invests in equity funds. There are companies which invest more than 32 % of the capital in equity funds, this increases risk towards investment and can affect returns at a massive rate.

You can look for best SIP plans in the market which can amplify your profits, or you can consult your fund manager for investment queries and tips.

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