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What is a Monthly Income Plan and How is it Beneficial?

dateKnowledge Centre Team dateFebruary 04, 2021 views135 Views
What is a monthly income plan and how is it beneficial?

Have you ever thought about what would be your financial source of income, if your regular source of income suffered a setback due to some mishap? People have this in them that term insurance will serve the purpose. But here's the catch, monthly income plan (MIP) that involves paying out the money to the family/nominee as a fixed monthly income over a long period.

A Monthly Income Plan (MIP) invests primarily in debt and equity securities with a mandate of producing cash flows and preserving capital. It has aimed to provide a steady stream of income in the form of dividend and interest payments. Therefore, it is typically attractive to retired persons or senior citizens who do not have other substantial monthly income sources.

It is the best alternative source for the ones who assure regular income as their backup. A scheme where an individual receives a certain sum of money every month accrues after a few years of payment of the premium. This plan is mostly referred to as monthly guaranteed income plans, assured monthly income plans or monthly pension plans.

Two Types of Monthly Plans

There are two types of investment options that can be categorised as the best monthly income schemes. The two types are –

1. Dividend-oriented monthly investment plan

The earnings generated through such plans are in the form of dividends. No tax is levied on the dividend paid to the individuals. Such dividends are paid from the AMC distributable surplus and are paid when the said fund earns profit from the market.

2. Growth-oriented monthly income plan

Through this plan, earnings accrued on the capital get added to the invested amount. It facilitates wealth creation along with corpus growth.

Features of Monthly Income Plan

MIPs generate higher returns than pure debt funds due to the equity-presence. They have delivered 10% to 12% returns, which is more than what fixed deposits offer. However, the dividend pay-outs are at the discretion of the fund company, not guaranteed. Here are some interesting features of monthly income plan-

1. It delivers more returns than other similar saving schemes and fixed deposits in terms of returns.
2. There is no limit on the investment for monthly income plans.
3. You do not have to pay any entry load or processing charges
4. The exit load cannot exceed 1%
5. High liquidity

Six Factors to Consider before Investing

Monthly income being the debt-oriented mutual fund, the earnings under this are taxable. You have to pay tax on dividends and tax on capital gains. Following factors will help you know the things better before investing-

1. Financial goal to achieve short term and long-term gains
2. Availability of pay-out options in monthly schemes.
3. Potential of wealth generation
4. Tax benefits offered
5. Risk willingness of an individual
6. Current financial status of the individual planning to invest

If you have a considerable disposable amount of money, then investing it in saving schemes or monthly income plans that offer regular monthly plans is a great idea. This ensures that your idle money starts paying out dividends or profits.

A. Fixed Deposit

With monthly pay-out options, banks and financial institutions provide the facility of fixed deposits. This type of deposit is mainly recommended for pensioners or senior citizens.

1. Fixed return
2. Regular pay-outs
3. Low risk of investment
4. Allowance of partial withdrawal
5. Loan against FD

Learn what is a fixed deposit plan and what are the benefits of including it in your investment plan.

B. Post Office Monthly Income Scheme

Best suitable for investors who are risk-takers wanting continuous income by any means of the source. With a deposit period of 5 years comes an interest rate of 6.60% from April 1st 2020. POMIS accounts can be opened in a child's name and provided he/she is 10-year-old or more.

1. Low-risk investment
2. Low initial deposits
3. Return is guaranteed
4. Reinvestment facility is on.
5. Nomination facility too.

Post Office Monthly Income Scheme | Saving Scheme

Numerous non-banking financial companies (NBFCs) and housing finance companies (HFCs) offer corporate deposits. These are similar to bank deposits, but the only difference is that you invest with a corporate entity, which is not as secure as a bank. It offers a high-interest rate and adds flexibility, which the bank deposits don't provide. Before making investments in corporate deposits, you must check for the financial strength and credibility of the NBFC.

Learn more about post office monthly income scheme.

B. Senior Citizen Saving Scheme

Scheme available for senior citizens of 60 years of age or above. This scheme provides them with the benefit of earning a higher return with minimum risk involvement. All a senior citizen has to do to invest in this scheme is to visit a certified bank and post offices. The money received from retirement benefits can also be invested in this scheme by senior citizens. Maximum limit of investing is Rs 15 lakh. Features of senior citizen saving scheme:

1. Safe investment option guaranteed by the Indian government.

2. Availability of nomination facility

3. Can apply from any authorised bank or post office nearby.

Learn more about Senior Citizen Saving Scheme.

Majority of the MIP investors are retirees, homemakers, and those about to retire as per the depositories' data. Monthly income plans are for individuals looking to park their savings to get a regular income. Also, the first-time mutual fund investors can consider MIPs as the stepping stone to experience the market.

A lot depends on the asset manager's expertise as the percentage of equity allocation is at his discretion. The fund manager selects the companies (large-cap, mid-cap, small-cap or micro-cap) to invest pooled investment, which helps manage risks. These funds are moderate-risk bets, and they mostly invest in debt securities such as debentures, public securities, and corporate bonds.

A monthly income scheme is a smart way to enjoy financial stability and security. Depending on the family's needs and life goals, you may choose to opt for a monthly income plan or scheme. Although choosing the best monthly scheme will provide future benefits to you and your family.

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Frequently Asked Questions

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns if you invest in this savings plan. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

Who should invest in a Savings Plan?

If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income. Choose an income plan based on your financial circumstances to stay afloat.

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What is the difference between saving and investing?

Saving is the money that you keep aside for emergencies or for buying any big-ticket item. Investing means growing or multiplying the wealth that you have by buying savings plan, or any other assets. Buying a savings plan will help you in achieving your investment goals such as retirement, your child’s higher education or marriage, or for buying a new house.

Which savings plan is best for retirement?

The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement. Also, Guaranteed Income4Life is also another savings plan that you can consider for building your retirement corpus as it acts as a guaranteed income plan that will provide you maturity benefits to manage your post-retirement expenses.

Which savings plan is best for long-term goals?

Smart Goals Plan is a savings plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals. Canara HSBC Oriental Bank of Commerce Life Insurance offers a wide variety of saving plans that you can invest in as per your risk appetite and investment goal.

Which savings plan is suitable for girl child?

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child. Monthly Income Advantage Plans are also a good option if you are planning to invest in a savings plan for your girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having the best savings cum guaranteed income plan in your portfolio is extremely important. Savings plan ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a monthly income advantage plan?

A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding in a savings plan. Invest in an income plan as early as possible to build a significant corpus that will later help you in life. Ensure that you buy the best saving plan in India that can be aligned with your investment goals.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. The best saving plan offers a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner. Buy a monthly income advantage plan that will generate a steady source of income for you to take care of both long-term and short-term financial goals.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in an income plan, it always pays well to start early. The earlier you start investing in a savings plan, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested in the best saving scheme for a long time can give substantial returns due to compounding. Buy the best savings plan as soon as you start earning to achieve all your milestones on time.

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How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Buy the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment. Consider investing in a monthly income advantage plan to assist you in fulfilling your financial goals.

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How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits, which makes them a good investment choice for investors looking for income plans.

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