Monthly Income Plan Vs. MIS in Post Office

What is the first thought that comes to your mind when you hear the term Monthly Income Plan(MIP). It is like some bells ringing and you think of a steady cash flow every month against an investment that you have made. But, wait, it is not the case. Let us take a look at what the monthly income plans are really are.

Monthly income plans are debt oriented mutual funds which offers you income on either monthly, quarterly, half-yearly or annually in form of dividends. The MIPs largely invests in debt instruments viz. corporate bonds, government securities, debentures, etc. Like any other mutual funds the MIPs too come in with two options that is Dividend and Growth options. But the interesting fact is that these MIPs does not give you guaranteed monthly income. Especially when the mutual funds do not declare dividends as there is no regulation or oversight on the MIPs part to declare dividends. Also, it has to be understand that as these are debt oriented funds, it does not necessarily means that they are safe and this may also generate negative returns in extreme an extreme case. The MIPs also enjoy better tax regime. The monthly payouts by MIPs are treated as dividends from debt funds and attract dividend distribution tax of 13.52%.

Now take a look at what the Post Office Monthly Income Scheme (POMIS) offers. It is also an instrument where you can earn in the form of interest at a rate of 8.40% per annum. Here the benefit is that you will get guaranteed income every month. It comes with a maturity period of 5 years.  The other point that needs to be highlighted here is that the interest income from POMIS is added to your taxable income and taxed at the marginal rate of tax, which for people in the highest bracket works out at 30.9%.

So it is advisable that if you want sure shot monthly income, it is better to park your funds in POMIS whereas if you are ready to play the volatility then one can also look to invest in MIPs with long term horizon.