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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) a type of mutual fund strategy that 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.

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 –

  • 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.
  • 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

Here are some interesting features of monthly income plan-

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

How to generate MIP returns

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.

Tax implications on monthly income plan

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.

Tax on capital gains-

  • Tax on short term capital gain- If you dispose of the mutual funds in less than three years, its profits are liable to be taxed as per the income tax slab.
  • Tax on long term capital gains- If you retain the mutual fund for more than three years, the profits invite a tax of 20%

Factors to consider before investing

Following factors will help you know the things better before investing-

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

These few factors will help you understand what investing in monthly income holds for you.

Now let us talk about which investment scheme is a better one.

Best monthly scheme

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

Here are some of the best monthly schemes-

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. Features of FD:

1. Fixed return

2. Regular pay-outs

3. Low risk of investment

4. Allowance of partial withdrawal

5. Loan against FD

Post office monthly 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. Features of POMIS:

1. Low-risk investment

2. Low initial deposits

3. Return is guaranteed

4. Reinvestment facility is on.

5. Nomination facility too.

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.

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.

Now let us have a look on who shall be more benefited by this monthly income plan. 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.

ASSESSING MIP RISKS

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.

ANALYSING MIP RETURNS

It can generate a higher return than pure debts due to the presence of equity.

Benefits of monthly income plan

Here are some of the basic benefits of a monthly income plan investment for you-

  • Safer investment- there is no limit on investment for MIP
  • Minimum overheads- no processing charges to be paid
  • Better returns- return on investment is usually higher than a return on FD
  • High liquidity- no lock-in period available.

Monthly income after retirement is a must check.

A monthly income plan is ideal for people looking for investment pay-out options after their retirement with a guaranteed monthly income and an insurance cover at the same time. There are different monthly income payment plans available.

Crosscheck and buy

Buying a monthly income scheme is easy, but online money income plans offer a cost-effective way to buy life insurance as all details are easily available. Some basic things to keep in mind-

  • Online or Traditional route- For the ones wondering whether to buy online or offline, you must note that online money income offers the same pay-out options as traditional policies. Although the cost of an online money income plan may slightly differ due to reduced cost and online income plan, offer great convenience.
  • Cost of plan- The direct cost of all plans is hidden in the details. Bigger players generally offer a better deal in terms of the direct plan cost. Receiving the pay-outs well before the premium payment period means you can use the sum received to pay off the owned premium amount.
  • Perfect time to buy the plan- The best monthly income plans will help you get regular retirement income when you are not working anymore. This means if you retire at the age of 60, you are likely to live for another 40 years a period more than the time you will spend working.

Invest in the right monthly income scheme

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.

So now that you have briefed yourself about the benefits of a monthly income plan and its necessity, make sure you choose the best alternative for yourself.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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