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Monthly Income Plans (MIP) – Features, Taxation, Risk & Returns

Last Update Date : April 30, 2019
Estimated Read Time: 5 min

Monthly Income Plans

As depicted by its name, the monthly income plan or MIP is a scheme through which an investor can earn a certain amount of sum monthly based on the premium deposited for a certain period. The monthly income plans or MIPs fall into the hybrid mutual fund category and more than 70 to 80 per cent of the invested amount moves into debt funds. MIPs are specially designed for the risk-averse traditional investors.

What are the Types of MIPs?

There are various Monthly Income Plans or MIPs offered by the financial institutions in India. They are broadly categorized into two types.

  • Dividend Based MIPs: In this type of schemes, investors get a monthly payout from the dividends. The earned dividends are tax-free for the investor. But the dividends are 14% lesser due to the tax distribution.
  • Growth Based MIPs: In growth-based MIPs the periodic investment gets added to the existing capital amount and gets compounded. However, in this type of scheme, the sum is not paid to the investors in regular intervals; instead, an investor can redeem along with the capital based on need.

Who should Invest in MIPs?

Monthly Income Plans or MIPs are primarily for the traditional risk-averse investors. If you are one of those who wants to invest in market-linked debt funds and ready to take moderate risks, then MIPs are ideal for you. MIPs suit most to the investors who are on the verge of retirement or already retired and plan to have a retirement corpus. Monthly Income Plans give an opportunity to park your amount in a moderately safe scheme and earn monthly dividends from it.

Features of MIPs

Monthly Investment Plans or MIPs are the preferred investment schemes for traditional investors as they are feature rich.

  • MIPs offer more returns than any traditional savings schemes such as fix deposits
  • MIPs does not have any investment limit
  • They are free of any entry loads such as processing fee
  • The exit load of MIP is not more than 1% of the invested amount
  • MIPs do not have any lock-in period
  • They offer higher liquidity benefits than any of the traditional schemes offered in the market
  • Your fund manager regularly monitors the growth of your funds and suggests corrective actions when needed

Benefits of MIPs

Monthly Income Plans or MIPs offers outstanding benefits to investors. Below is a list of benefits offered by MIPs.

  • Monthly Payments: MIPs offers regular payment options to investors. Though MIPs are market linked scheme, they ensure that the investors receive monthly payments
  • Offer Lump Sum Benefits during Maturity: Majority of the MIPs offered in the market provides lump sum amounts to the investor at the time maturity of the scheme. This helps in meeting the bigger planned expenses such as home improvement or buying of house or land etc.
  • Insurance Cover: If you have bought your Monthly Income Plan or MIP from a life insurance provider, the scheme typically comes with a life insurance cover.
  • Bonus Amount: MIPs also offers a bonus amount which is usually gets added with the last monthly payout. MIPs offer three types of bonuses to the investors: interim, revisionary and terminal. Such bonuses are helpful in fulfilling the planned goals.

Best Monthly Income Plans to Choose from

Majority of financial institutions in India offers customised Monthly Income Plans or MIPs based on the financial needs of the insured and nominees. Such plans ensure guaranteed monthly income with lump sum payout at the time of maturity. However, the payout is specific to the terms and conditions offered by your insurance provider. We have shortlisted four best Monthly Income Plans based on the evaluation of their features, benefits and returns offered to the investors. This will be helpful for you to decide the best suited Monthly Income Plan.

S. No.Name of the Monthly Income PlanBenefits
1Max Life Monthly Income Advantage Plana) Offers monthly payouts up to 10 years

b) The monthly payout gets doubled during the last five years

c) The monthly payment immediately starts post completion of the premium deposits

d) Provides guaranteed terminal premium benefits during the last payout

2Bharti AXA Life Monthly Income Plan Plusa) The regular payout starts right after the end of the premium payment

b) Offers flexibility of choosing monthly payout options

c) Monthly income term can extend up to 30 years

d) Pays revisionary bonus during the end of the policy period

s) Provides premium waiver, hospital cash and accidental death benefits

3Canara HSBC Oriental Bank of Commerce Life Insurance Smart Monthly Income Plana) Insured has the flexibility to the set the monthly income based on which the amount of premium gets decided

b) Offers guaranteed monthly payouts up to 15 years

c) The sum assured amount is hundred time of the monthly payout

4MetLife Monthly Income Plan-10 Paya) Offers monthly payouts up to 15 years

b) The amount of monthly income can go up to 1 Lakh

Earning Potentials of MIPs

Since Monthly Income Plans are equity-linked, they perform better than the absolute debt funds. Typically, most of the MIPs offer 10 to 12% returns which is better than the traditional schemes such as fixed deposits. However, dividend-based payouts are not guaranteed.

Tax Implications on MIPs

Since MIPs are debt funds, they are taxable. Both long-term capital gain (LTCG) and short-term capital gain (STCG) rules are applicable to MIPs. If a MIPs gets disposed of prior to three years, it will be taxed as per STCG rules, i.e. 15%. If the investors hold the shares for more than three years, it will come under LTCG and 20% tax will get implied. Monthly Income Plans are a great way to earn sustained monthly income during retirement.

People also ask

Q. What are the documents required to start a Monthly Income Plan?

A. A part of KYC fulfilment to start a Monthly Income Plan, you need to submit the below:

  • PAN for identity proof
  • Valid address proof
  • A cancelled cheque

Q. Who should invest in Monthly Income Plans?

A. Monthly Income Plan should be the preferred investment scheme for the retired individual and housewives towards the creation of a monthly corpus

Q. Is Monthly Income Plan Taxed?

A. Yes, the Monthly Income Plans are taxable under Short-Term Capital Gain (STCG) and Long-Term Capital Gain (LTCG)

Q. What are the different types of Monthly Income Plans?

A. The Monthly Income Plans are two types.

  • Dividend based MIPs
  • Growth based MIPs

Q. What are the difference between conservative and aggressive Monthly Income Plans?

A. In conservative MIPs, 15 to 30% of the capital gets invested in equities and risks are moderate. Thus, offers guaranteed monthly income.
On the other hand, the aggressive Monthly Income Plans are volatile as they are largely equity-linked. Since the aggressive MIPs depend on market conditions, the dividends are not guaranteed.

How can H&R Block help you?

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CA Shreya Oturkar
Shreya is a tax advisor at H&R Block (India) with intensive experience in SME taxation and audit. She holds an advanced post graduate qualification in accounting and is highly skilled in financial analysis and reporting. Apart from her professional achievements, Shreya is a talented artist with a flair for free-hand sketching!

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