1. No, they are not similar in the truest sense.
2. The former is a market-related debt-oriented fund while the latter is a fixed income instrument which pays interest.
3. Monthly Income Plans (MIPs) are mutual fund schemes that aim at paying investors every month some amount of money as dividend.
4. They are medium to long term duration funds with maturity of 3 years and more.
5. However, there is no guaranteed rate of return, although the risk and returns is both moderate.
6. MIPs invest primarily in debt instruments, but hold a small portion in equity (5-30%), to enable growth in investments.
7. They are ideal for investors who are looking for returns better than traditional debt instruments but do not want a very high exposure to equities.
8. The tilt towards debt ensures stability of income while the equity portion provides appreciation when stock markets rise during a bullish phase.
9. Investors can choose from growth and dividend options in an MIP, depending on their need and tax status.
10. Investors choosing a growth option can redeem a part of their units regularly, using Systematic Withdrawal Plans (SWPs) to generate regular income.
11. Withdrawals are subject to capital gains tax, but an investor who falls in the tax-free or low-tax category can use it to reduce his tax outgo.
12. On the other hand, when an investor chooses Fixed Deposits (FDs), he does not select the market returns, but settles for a pre-determined fixed interest rate.
13. The market does not matter to this simple investor as he is satisfied with a fixed rate.
14. Interest income from FDs is taxable as per his slab rate.
15. As MIPs are debt funds, they are far more tax efficient than FDs, as their capital gains attract a lower tax rate, except when an investor is in the lowest income tax bracket.
16. There is also no Tax Deduction at Source (TDS), so there is no need to submit Form 15H or 15G like in FDs.
17. Further, in MIPs, the tax is deferred indefinitely till the investor redeems his units, while the income from FDs is taxed on an annual basis even if it matures 5-6 years later.
18. Also, unlike FDs, the gains from an MIP can be set off against short-term and long-term capital losses in other investments.
19. Moreover, the dividends received in MIPs are tax-free in your hands as Dividend Distribution Tax (DDT) is already paid by the fund house.
20. MIPs are also more liquid, as you can withdraw your investments at any time, and can also make partial withdrawals, without having to break the entire investment as in FDs.
21. When you invest in an open-ended MIP, there are no hassles of maturity, reinvestment and prevailing interest rates, and you don't lose even a day's growth.
22. You can even invest small amounts through SIPs or even lump sums through laddering strategy.
23. You can also seamlessly shift money from an MIP to an equity fund of the same fund house through Systematic Transfer Plans (STPs), and there is no penalty even if it stops due to insufficient money in your MIP.
2. The former is a market-related debt-oriented fund while the latter is a fixed income instrument which pays interest.
3. Monthly Income Plans (MIPs) are mutual fund schemes that aim at paying investors every month some amount of money as dividend.
4. They are medium to long term duration funds with maturity of 3 years and more.
5. However, there is no guaranteed rate of return, although the risk and returns is both moderate.
6. MIPs invest primarily in debt instruments, but hold a small portion in equity (5-30%), to enable growth in investments.
7. They are ideal for investors who are looking for returns better than traditional debt instruments but do not want a very high exposure to equities.
8. The tilt towards debt ensures stability of income while the equity portion provides appreciation when stock markets rise during a bullish phase.
9. Investors can choose from growth and dividend options in an MIP, depending on their need and tax status.
10. Investors choosing a growth option can redeem a part of their units regularly, using Systematic Withdrawal Plans (SWPs) to generate regular income.
11. Withdrawals are subject to capital gains tax, but an investor who falls in the tax-free or low-tax category can use it to reduce his tax outgo.
12. On the other hand, when an investor chooses Fixed Deposits (FDs), he does not select the market returns, but settles for a pre-determined fixed interest rate.
13. The market does not matter to this simple investor as he is satisfied with a fixed rate.
14. Interest income from FDs is taxable as per his slab rate.
15. As MIPs are debt funds, they are far more tax efficient than FDs, as their capital gains attract a lower tax rate, except when an investor is in the lowest income tax bracket.
16. There is also no Tax Deduction at Source (TDS), so there is no need to submit Form 15H or 15G like in FDs.
17. Further, in MIPs, the tax is deferred indefinitely till the investor redeems his units, while the income from FDs is taxed on an annual basis even if it matures 5-6 years later.
18. Also, unlike FDs, the gains from an MIP can be set off against short-term and long-term capital losses in other investments.
19. Moreover, the dividends received in MIPs are tax-free in your hands as Dividend Distribution Tax (DDT) is already paid by the fund house.
20. MIPs are also more liquid, as you can withdraw your investments at any time, and can also make partial withdrawals, without having to break the entire investment as in FDs.
21. When you invest in an open-ended MIP, there are no hassles of maturity, reinvestment and prevailing interest rates, and you don't lose even a day's growth.
22. You can even invest small amounts through SIPs or even lump sums through laddering strategy.
23. You can also seamlessly shift money from an MIP to an equity fund of the same fund house through Systematic Transfer Plans (STPs), and there is no penalty even if it stops due to insufficient money in your MIP.