What Is a Monthly Income Plan (MIP)?

Monthly Income Plans Explained in 4 Minutes or Less

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Monthly income plans (MIPs) are a type of mutual fund strategy that invests primarily in debt and equity securities. MIPs are designed to supplement the income of senior citizens who may not have sufficient means to support themselves otherwise.

Senior citizens or retired individuals who don't have substantial sources of monthly income may choose to invest in a monthly income plan (MIP). MIPs are mutual fund plans designed to produce cash flow and preserve capital with the goal of providing a steady income stream to investors. They're invested primarily in debt and equity securities and generate income in the form of interest payments and dividends.

MIPs are constructed in a very specific manner, and they operate under defined rules. Learn about the makeup of a typical MIP, the rules governing MIPs, and where MIPs are popular.

Key Takeaways

  • Monthly income plans (MIPs) are mutual funds designed to provide a regular income stream in the form of interest and dividend payments.
  • MIPs are designed for senior citizens and retirees who may not have enough dependable income sources to cover their expenses.
  • These plans are more popular and available in India than they are in the U.S.
  • The debt-to-equity ratio of MIPs weighs more heavily in favor of debt securities, which are typically less volatile and more dependable than equity securities.
  • MIPs don't guarantee profit, and investors may suffer a loss during a market downturn.

How Does an MIP Work?

Monthly income plans are conservative strategies designed to preserve capital and deliver regular income to investors. They're more popular in India than they are in the U.S., where they may be hard to find, particularly by this name.

Despite their generally conservative makeup, MIPs are inherently risky, as are all investments. There's no guarantee an MIP will pay out monthly, and investors may even lose money during a market downturn. The level of equity exposure is affected by market volatility. In fact, the Securities and Exchange Board of India bars mutual funds from guaranteeing interest and dividend income to investors.


MIPs are designed to provide a steady (usually monthly) income to their investors, so the investment breakdown tends to be quite conservative.

MIPs tend to limit the percentage of stocks in their portfolios in order to minimize the volatility characteristic of stocks. Nevertheless, MIP investors should be sure they can afford the potential for a hopefully temporary loss on their investment.

An Example of an MIP

Typically, 20% to 30% of an MIP’s fund is invested in equity securities. The remaining 70% to 80% is invested in debt securities.

This investment ratio poses a challenge for MIPs because dividends, which produce much of the income generated by MIPs, are only paid on the profit generated by equity securities and not the initial investment itself. MIPs’ performance therefore resembles more dependable debt securities.

Pros and Cons of Monthly Income Plans

  • Can help generate steady revenue to supplement seniors’ income

  • Skewed in favor of debt securities, which are historically more conservative and reliable than equities

  • Not readily available in the U.S.

  • Don't guarantee income

  • They bear a certain amount of risk as a hedge investment

Pros Explained

  • Can help generate steady revenue: This factor makes MIPs well suited to supplement the income of senior citizens and retirees.
  • Skewed in favor of debt: This weighting usually makes MIPs more conservative and reliable than equity investments.

Cons Explained

  • Not readily available in the U.S.: MIPs are primarily an investment option in India.
  • Don't guarantee income: As with most financial investments, no payment is assured.
  • They bear a certain amount of risk as a hedge investment: Investors may lose money on MIPs during a market downturn.

Is an MIP the Right Investment for You?

Whether investing in a MIP is appropriate for you depends on several factors. First, location plays a significant role. These are not popular investment vehicles in the U.S.

Second, consider whether you have the means to weather a market downturn. MIPs don't guarantee payment, so any investor must make sure they can afford a loss.

Frequently Asked Questions (FAQs)

What is the tax liability for an MIP?

U.S.-based MIP investors are taxed on MIP distributions at the standard interest and dividend rate. Earnings on investments sold in less than one year’s time are categorized as short-term capital gains and are therefore taxed as ordinary income. As of October 2022, long-term capital gains (earnings on investments held for a year or more) are taxed at either 15% or 20%, depending on the investor’s taxable income.

Is an MIP appropriate for an aggressive investor?

MIPs are conservative investments and typically do not return large sums. They're not the best choice for an aggressive investor seeking more growth in capital.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. ReLakhs.com. "Best & Top Rated Monthly Income Plans (MF – MIPs)."

  2. Securities and Exchange Board of India. "SEBI Investor Education Programme - Investment in Mutual Funds."

  3. Bajaj Finserv. "Best Investment Options To Get a Monthly Income."

  4. IRS. "Topic No. 409 Capital Gains and Losses."

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