If you are someone who is not really happy with their monthly salary and wish to improve their existing financial condition, you need to start investing soon. That’s because just saving your money and parking it in the bank isn’t sufficient. If you want to beat inflation you must invest so that in the long run, your investments multiply and potentially help you build a commendable corpus. Do understand that building a corpus is not an overnight journey and hence, you need to start investing early. But before you start investing, the first thing to do is financial planning. Financial planning is essential as it helps you determine your short term as well as your long term goals and also helps you pursue your dreams and goals.
Mutual funds like hybrid funds are a great investment tool especially if you have a long term investment horizon. For those who do not know, mutual funds are professionally managed funds owned AMCs (asset management companies). These AMCs collect money from individuals sharing a common investment objective and invest this pool of funds in stocks and other money market instruments like government securities, corporate bonds, call money and treasury bills across the Indian and foreign economy. The performance of a mutual fund severely depends on the performance of its underlying assets and the performance of the sectors or industries where they have invested.
You can invest in mutual funds via lumpsum or SIP and withdraw your gains by starting a MIP (monthly income plan). If you wish to find out more about how to invest in mutual funds or how to systematically receive your mutual fund gains, read further.
What is SIP and lumpsum investment?
There are two ways in which you can invest in mutual funds. For example, if you want to invest in a hybrid funds, you can either start a SIP or make a lumpsum investment. Lumpsum investment is usually considered by those who have surplus cash parked in their bank and wish to put it to better use. One good thing about lumpsum investment is invested are allotted more number of mutual fund units in proportion to the investment amount and depending on the fund’s existing net asset value or NAV. The only downside here is lumpsum investment exposes your entire investment amount to the dangers of equities and in volatile market conditions, one may lose out of a large investment amount. SIP or Systematic Investment Plan on the other hand, is a systematic investment approach where you pay a small amount at regular intervals. SIP is ideal for those who wish to benefit from compounding and have a long term investment horizon.
Now that you know how to invest in mutual funds, let us focus on MIP and who should consider starting a MIP in mutual funds.
What is MIP?
Monthly Income Plan (MIP) is a guaranteed income plan offered by mutual fund houses where a mutual fund holder receives guaranteed income for ten years after completion of the premium payment term. This plan is usually ideal for retirees who are living on a fixed income and are seeking steady capital gains through mutual fund investments.
In a monthly income plan, the mutual fund holder continues to pay a premium term for a certain year and once the money is accrued, they start receiving a fixed monthly amount for the following ten years. Monthly income plans are offered by mutual funds as well as life insurance companies. But in case of monthly income plans offered by life insurance companies, they also offer insurance cover to protect the investor. But a pure MIP only payouts monthly income to the fund holders.
Now that you know what monthly income plan in mutual funds is, plan on investing? So if you have decided to invest in a mutual fund, for example, a hybrid fund, let us warn you with the fact the mutual fund investments are subject to market risk and your investments are constantly exposed to the volatile market conditions. So rethink before making an investment decision and do adequate research before entrusting your hard earned money in any scheme.