Manoj Nagpal, CEO of Outlook Asia, says: "MIPs provide investors with a limited exposure to equities of around 10-25 per cent and the aim is to enhance debt returns for investors. In a scenario, as we have seen in the last 3 years, where equity markets continue to move up, this combination proves beneficial to investors. However to take this an indication of steady income may not be true in all market cycles."
The one-year, three-year and five-year annual returns from hybrid (debt-oriented conservative) category have been over 10 per cent, according to Value Research's website. In terms of taxation, like debt funds if investments in monthly income plans are locked in for three years, then the gains (profit or interest income) are taxed at 20 per cent but they become eligible for indexation benefits. The indexation benefit helps bring down the tax burden considerably.
However, short-term capital gains (if exit is within 3 years) on debt funds is added to your income and taxed as per your applicable tax slab.
Investors with a horizon of at least 3-5 years and looking at a conservative and controlled exposure to capital markets could find the growth option of MIPs suitable, says Mr Nagpal.
Dividend payouts from MIPs are suitable for investors in the highest tax slabs, says Mr Nagpal of Outlook Asia.
On the other hand, investors could also consider systematic withdrawal plans (SWPs) in mutual funds to earn regular income, he says.
"SWPs provide investors with a fixed inflow every month (vis-a-vis dividends which might fluctuate) to investors and help manage the cash flows of investors rather than just the tax benefit. However the tax benefit is also an added advantage for investors as SWP leads to partial withdrawal of capital and partial gains leading to a lower impact of tax on investors," adds Mr Nagpal.