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Definition: Monthly Income Plan (MIP)
MIP is an investment option that is provided by most mutual funds. It is an investment fund that pays the investor an income every month depending on interest rate and other return determining parameters.
Usually MIPs are referred to as “debt oriented mutual funds” as the investors’ funds are invested maximum (around 80%) in debt instruments like bonds, debentures, government securities, etc. The rest of the funds are invested in equity instruments in a view to balance risk and return (debt instruments do better when interest rates fall, whereas, equity instruments do better when interest rise). MIPs are taxed like that of regular debt funds. However, dividends received from MIPs are tax-free.
There are monthly income schemes that are provided by post offices also. These schemes are like a fixed deposit accounts with standard interest rates for a given maturity period. The payments are automatically credited into the savings account of the investor.
MIPs are relatively low risk investments (they are not completely risk-free) and they provide a source of steady income to investors (plan can be tweaked for quarterly or annual payments also). Hence they are best suited for retired persons.
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