MIPs

MIPS stands for Monthly Income Plan, and it is a type of mutual fund scheme that aims to generate regular income for investors by investing in a mix of debt and equity instruments. In other words, MIPS is a hybrid mutual fund that provides investors with the benefit of both fixed income securities and equity investments. MIPS can be an excellent investment option for those investors who are looking for regular income, but at the same time, also want to benefit from the long-term growth potential of equities.

The asset allocation in MIPS typically ranges from 75-80% in debt instruments such as bonds, fixed deposits, and money market instruments, and the remaining 20-25% in equities. The debt portion of the fund provides stability to the investment, while the equity portion provides the potential for capital appreciation over the long term. The income generated by the debt portion is used to pay out regular dividends to investors, while the equity portion provides additional income through capital gains.

One of the significant advantages of investing in MIPS is that it offers regular income to investors, which can be especially useful for retirees or those who need a steady stream of income. Additionally, MIPS also provides the potential for long-term capital appreciation, making it an attractive option for investors who want to grow their wealth over time. However, it’s important to note that like all mutual fund investments, MIPS also carries some level of risk, and investors should carefully consider their investment objectives, risk tolerance, and time horizon before investing in it.

MIPs are suitable for investors who want to invest in debt funds but would not mind to bear some risk for an extra return through investments in equity markets. However one should note that these funds may not provide adequate returns when the markets witness correction or are in a bear phase. Thus MIP would be ideal when the equity markets are in a bullish phase or when the investors stay with the fund for an adequate period of time. Also, because of the higher volatility caused by the equity component in MIPs, they are not ideal vehicles for risk-averse investors seeking supplement to monthly pension. One way to reduce the risk is to lengthen your investment horizon. Equities have the ability to deliver higher return over a longer period of time. And the debt portion of MIP is always there to provide a relatively stable return.