September 26, 2010 1:00 am
What is the advantage of MIP plan over normal mutual funds? with MIP mutual funds, can one decide the monthly income in the beginning?
Hybrid funds are those that combine two asset classes, debt and equity. There are three types of funds that fall within it: debt oriented, equity oriented and monthly income plans (MIPs).
MIPs will invest 10-25% in equity market and remaining in debt markets. It is a great option if you are a conservative investor. That means you want to earn a marginally better return than had you invested only in debt. When talking about MIPs, it must be clarified that there is no return guaranteed. As such the fund houses are not obligated to pay the monthly income. Its payments are subjected to the availability of distributable surplus. sometimes during economic downturn like 2008-09 financial year, only five out 34 odd MIPs with a monthly dividend payout options have been consistent in paying dividends uniformly every month.
Over the past five years, the category has delivered an average annualised return of 9.32 per cent. The best performer (UTI Mahila Unit Scheme) delivered 18 per cent.(source: valueresearchonline.com)
Hope it clears ur doubt.
Happy investing 🙂
By normal MF, you mean to say equity diversified mutual fund?
They invest from 65% to 100% in equities.
MIP schemes invest 80% in debt (relatively safe instruments) and 20% in equities. This ratio 80-20 might differ from scheme to scheme.
MIP is helpful if your risk appetite is less.
Monthly income is in the form of dividend declared by MF company and it is not in your hands. For one month, they may not even declare the dividend.
So you should not fully depend on the income from MIP.
Hope this helps.
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