Investors are of different kinds. Some want to invest for the long term and expect to acquire significant wealth. Some invest for the short term and expect to achieve smaller gains frequently.

Amid all the hustle bustle of value investing for long term and speculation for short term, there is a third type of investor that wants to get a regular monthly income out of his investments. A monthly income plan is one such product that can meet this requirement.

Monthly income plan

This is a product that supplies monthly income to the investors. The returns are average but the risk is also less. Investors with low to medium risk profile prefer monthly income products as it provides low risk return. The return from MIP varies from 6% to 12% depending on various factors including market conditions, interest rate, and composition of MIP funds.

Choices: MIPs are relatively popular with old age group as they seek certainty of returns and low risk. There are MIP products offered by Government & Government agencies, banks, and fund houses. Let?s take a look at the plans available for investors.

MIP Funds

MIP funds are mutual fund schemes that provide monthly income to investors. Typically mutual funds MIPs are riskiest among the choices available as their returns vary as per market situation. MIP funds have to provide monthly income to investors. Hence they do not take much risk with the investment. MIP funds invest major part of the fund in safe assets such as Government bonds, schemes, and high grade corporate bonds. A small part of the fund is invested in equities to gain from appreciating market. This means almost 70%-80% will be invested in low risk assets while rest 20%-30% can go to equities or other assets.

MIP funds, however, do not guarantee monthly income. The income can be delivered monthly, quarterly or yearly. There is no obligation on MIP funds to deliver income to investors. There are cases where MIP funds did not deliver income for few periods in a row. The reason could be bad market conditions. Additionally, they do not deliver constant income every period. The income can vary based on market and policy of the fund house.

Choices: Best MIP funds are HDFC MIP, ICICI Prudential MIP 25, Birla Sun Life Monthly Income, and Tata MIP Plus, among others.

Bank schemes

Few banks also offer monthly income plan. The foremost of them are Syndicate Bank, Bank of Baroda, Dena Bank, and Union Bank of India. For example, Syndicate bank offers a plan called social security deposit where investors can invest a lump sum amount of money and the interest is paid monthly. Similarly Dena bank offers a fixed deposit plan where investors can withdraw interest monthly.

Investing in plan offered by banks is almost risk-free. Banks don?t go bankrupt usually and even if they go, there is RBI and big banks that are there to help the customers of the bank. The interest can be anywhere between 7% and 10% depending on prevailing policy rates set by RBI.

Government schemes

Government has devised post office monthly scheme (PMS) for investors who seek monthly income from their investment. This scheme is risk free as it is backed by the Government. The interest is 8% per annum and the investors get 5% bonus at the end of the maturity period. This makes the effective annual returns 8.84%. The maturity period is 6 years. The maturity period is also lock in period and you cannot break the scheme before 6 years. If you do, you will have to pay penalty. It is 2% if the investors break the scheme before 3 years and 1% of the fund if after 3 years.

The investment is tax deductible under income tax article 80C subjected to the limit of R1 lakh. The investor can invest a maximum of R4.5 lakh under one account. At R4.5 lakh, the monthly income will be about R3,000. This can be opened in most of the post offices across the country.