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Monthly Investment Plans

Monthly income plans (MIP), or monthly investment plans, are an investment product designed to provide you with a regular income every month. The primary aim of a monthly income plan is to generate a stable income flow for investors who rely on regular monthly income to meet their day to day expenses. Monthly income plans can be a helpful investment option if either you are seeking supplemental income every month, are a retiree, or are looking for a regular income payout while preserving your invested capital.

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Monthly Investment Plans

Monthly Investment Plans: Features, Benefits, and Selection Criteria

Monthly Investment Plans: Features, Benefits, and Selection Criteria
August 09, 2024

Table of Content

 

What are Monthly Investment Plans?

Simply put, a monthly income plan is an investment plan that provides you with a steady income stream every month. All you need to do is invest a fixed amount on a regular basis, over a specific period, such as 10 years or 20 years. All this investment money keeps getting accumulated and grows over time, and once the plan matures, a monthly income starts getting deposited into your account for a predetermined period of time.

Banks, insurance companies, and mutual funds are some of the financial institutions that offer monthly investment plans. MIPs generally invest their money in fixed-income instruments like bonds, debentures, government securities, and also in equities. Through a diversified portfolio, monthly income plans aim to strike a balance between capital appreciation & regular income generation.

Features of Monthly Income Plans

Following are some key features of monthly income plans:

  • Regular income through monthly payout

    • Investing in a monthly income plan (MIP) enables you to regularly receive a constant source of income every month through monthly payouts. This ensures a stable inflow of income, whether it acts as an additional source of income during your career or as a salary replacement for retirees.

  • Affordability

    • Usually, monthly income plans are highly affordable as they allow you to begin investing in smaller amounts, such as Rs 1,000. Gradually, you can increase the contributions as and when your income grows.

  • Diversified portfolio

    • As monthly income plans invest your money in fixed-income instruments like bonds, debentures, government securities, and also in equities, their diversified portfolio aims to strike a balance between capital appreciation & regular income generation.

  • Rupee cost averaging

    • Monthly income plans use the rupee cost averaging concept so that you, as an investor, need not time the market every time to invest. This concept of rupee cost averaging evens out market's ups and downs in the long term, & allows the investor to fetch better returns on their investment.

Benefits of Monthly Investment Plans

1. Power of Compounding

Also termed as the world's eighth wonder, the magical power of compounding is among the biggest benefits of monthly income plans. As the returns from your investment directly depend on how long you remain invested, it is important to start investing as soon as possible and not wait for later years, like your 40s or 50s.

For example, Anand began investing Rs 2,000 every month fifteen years ago, and by now, he would have invested Rs 3.6 lakhs. His corpus at present stands as Rs 10,09 lakhs, assuming a conservative return rate of 12% p.a. Thanks to the power of compounding, Anand has been able to fetch nearly 7 lakh in returns during his 15 years investment journey.

However, had Anand begun investing just seven years ago, he would have invested just Rs 1.68 lakh to date. Assuming a conservative return rate of 12% p.a., his corpus would stand at Rs 2.64 lakhs at present, implying a return of just Rs 96,000 in seven long years.

2. Building Discipline

Regularly investing a particular amount towards monthly income plans helps inculcate discipline among investors. Repeatedly investing a small amount without failing or skipping it in any month is what will help you develop the habit of disciplined investing. This is especially helpful for those who are enthusiastic at the beginning but fail to keep that habit going in the long run.

3. Consistent Savings

Disciplined investment automatically translates into consistent savings for every investor. When you keep investing a particular amount every month consistently for a long period, your savings will keep growing, too. Through the power of compounding, such savings, in the long run, grow your money significantly.

4. Tax Benefits

Some monthly income schemes provide tax-saving benefits, which can help you plan your taxes for those financial years. For example, a monthly income plan such as SCSS (Senior Citizen Savings Scheme) offers tax deductions of up to Rs 1.5 lakh every financial year under Section 80C *.

5. Wide Range of Options

There are many monthly income plans you can choose from when planning to invest with the purpose of regular income inflow. The wide range of monthly investment plans includes senior citizen savings schemes, ULIPs which offer Life Insurance Coverage along with investment options, annuities, mutual fund monthly income plans, post office monthly income schemes, etc. You should first be clear about whether you want to invest in either a short term investment option, a one time investment option or a long term investment option and then accordingly choose the investment plan.

How To Select The Right Investment Amount?

  • Financial goals

    • Whenever you are thinking of purchasing a monthly investment plan, do not forget to factor in the financial goals which you want to meet through the investment's returns. Without tying the investment to your financial goals, such as retirement, travelling abroad, a child's higher education, etc., you will not be able to identify the investment horizon and amount that you would need to invest to meet that goal in a timely manner Only when you have a clear goal set in mind for which you want to invest in a monthly income plan can you estimate the right amount in accordance with the time you have to achieve that goal? The bigger the financial goal and the lesser the time you have, the more you will need to invest.

  • Income and Expenses

    • Another key factor to consider when opting for the appropriate investment amount is your current income and expenses. Having a clear understanding of your existing income and expenses would be helpful in calculating your investment amount more precisely. Of course, you would be knowing your current income, right? The next thing is to estimate your current expenses, which can include recurring household expenses, loan EMIs, daily commute expenses, etc. So, if your current expenses do not consume too much of your monthly income, then you have the appetite and capability to invest a bigger amount towards your monthly income plan so that you can meet your financial goals timely or even earlier.

  • Planned expenses

    • Besides factoring in your current income and current expenses, it is equally important to consider your planned expenses. You might have some planned expenses that need to be achieved in the near future, whether it's a short term one, such as a home renovation or gadget purchase, or a long term one, such as buying a house or a vehicle. All such planned expenses need to be factored in so that you are better prepared to assess your financial status and then accordingly take the decision regarding your investment amount towards your monthly income plan. Once you determine that amount, set it aside so that your other expenses do not get affected or your earmarked amount for investment does not get consumed for some other purpose.

  • Financial dependents

    • While doing the calculation of your investment amount for the monthly income plan, it is crucial to consider how many financial dependents you have in your family, whether it is only your spouse or your parents, children, and siblings as well. The amount you need to invest in a monthly income plan would depend on the number of financial dependents.

  • Insurance needs:

    • Assess your life insurance requirements based on your current lifestyle, outstanding debts, and future financial goals for your family. This will help you determine the right balance between investment and insurance components in your plan.

    Remember, the integration of life insurance with your monthly investment plan provides a comprehensive approach to financial planning, ensuring both growth and protection for you and your loved ones.

FAQs on Monthly Investment Plan

Q. What is the best investment for a month?

You can choose to invest an amount that you can comfortably contribute every month in your chosen monthly income plan. The best investment for a monthly income would depend on factors like your financial goal, risk appetite, investment horizon, etc. You can choose from monthly income plan options such as ULIP Plan, annuities, mutual fund monthly income plans, post office monthly income schemes, etc.

Q. How do monthly investment plans work?

In a monthly income plan, all you need to do is invest a fixed amount on a regular basis over a specific period, such as 5 years, 10 years, or 20 years. All this investment money keeps accumulating and growing over time, and once the plan matures, a monthly income starts being deposited into your account for a predetermined period of time.

Q. Are monthly investment plans safe?

Most monthly investment plans are safe, with the level of risk/safety varying among different investment options, such as ULIPs, annuities, mutual fund monthly income plans, etc.

Q. What types of monthly investment plans are available?

There are many monthly investment plans you can choose from, such as ULIPs, annuities, Pradhan Mantri Vaya Vandana Yojana (PMVVY), govt bonds, mutual fund monthly income plans, etc.

Q. How do I start a monthly investment plan?

You can start online investing in a monthly income plan with one of India's largest insurers, HDFC Life. It offers monthly investment plans such as HDFC Life Super Income Plan and HDFC Life Guaranteed Income Insurance Plan.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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* Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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