To enjoy a financially secure life during your working years and throughout your retirement, you must invest in plans which allow you monetary independence. MIPs and SIPs are among some such plans to consider.
Investing consistently through mutual funds allows an investor to accumulate enough wealth for the future. Investing in Monthly Investment Plans (MIPs) or Systematic Investment Plans (SIPs) can get you financial freedom for life. Let us see the difference between MIPs and SIPs to choose the best plan as per your income and financial goals.
What is MIP or Monthly income plan?
A monthly income plan or MIP is a mutual fund that invests in equity and debt securities to generate cash flow and protect capital at the same time. MIPs are designed in a way so that you can have consistent income coming in from interest and dividends. Hence, MIP schemes appeal to retired individuals and elderly citizens who do not have many other ways of earning consistent monthly income.
However, you must note that, unlike its name, MIP may not allow guaranteed income monthly. When the market is strong, investors can expect a constant source of income. And during market fluctuations, they might experience a fall in terms of returns. So, the volatility in the market impacts the expected returns.
What is SIP or Systematic Investment Plan?
A systematic investment plan or SIP is another type of mutual fund investment. It is regarded as the easiest and most effective way to invest in the stock market. There are several types of SIPs that one can choose to invest in. SIP investments need the investor to make regular monthly contributions. These contributions are then further used to invest online in mutual fund schemes.
So, SIP is not a standalone investment instrument. Rather it is a way of accruing a corpus using regular and constant contributions. Hence, it is considered an effective way to invest if you are looking at long-term investment goals.
SIPs allow investors to put their money in various mutual fund schemes to accumulate a corpus for their future and earn through SIP interest rates. SIPs allow investors to spend meager amounts of money on a weekly or monthly basis as per the plan.
Investing Method – How to Invest in SIP?
The method of investing in SIPs is easy and hassle-free. Under SIPs, you need to keep aside a particular sum of money to be deducted from your account on a weekly, monthly, or fortnightly basis as per the plan.
Further, SIPs allow the investor to invest in several financial instruments like debts, equities, etc. as per the risk tolerance of the investor along with their financial goals. If you plan to invest in a SIP for a long duration, you are likely to receive superior returns.
Since SIPs allow the investor to invest a specific amount at regular intervals, it encourages the investor to develop the habit of saving.
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Investment Methods for MIPs and SIPs
If you want to invest in a Mutual Fund scheme, the first thing to consider is how you want to invest in the fund. There are some options such as:
Under MIPs, the investor makes a single lump sum investment of the total amount that the person wants to invest in. For example, if you want to invest INR 50,000 in a mutual fund by using the lump sum payment technique, you will have to submit the same amount at one go to start the investment.
If you choose to invest in a SIP, you can start the investment process with a small amount. SIP can be started with a minimum investment amount of INR 500 to INR 1000. For example, if you want to invest in a SIP with INR 50,000 for 10 months, you can do so by investing INR 5000 each month for the next 10 months.
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Generating regular income every month is important to supplement your source of income for the future, especially after your retirement. This can be ensured by investing in a mutual fund scheme by paying a lump sum amount or a fixed sum at regular intervals to earn decent returns. Here, you can use the SIP calculator to estimate the amount you would require to invest regularly to get the desired returns.
FAQs: Difference Between Monthly Income Plans & Systematic Investment Plans
What is SIP Investment?
A systematic investment plan or SIP is a type of mutual fund investment where the investor is required to make regular monthly contributions. These contributions are then further used to invest in mutual fund schemes to gain maximum returns.
What are the best SIP plans for 1000 per month?
Here are some good SIP plans:
~ ICICI Prudential Equity and Debt Fund
~ Aditya Birla Sun Life Digital India Fund
~ ICICI Prudential Value Discovery Fund
~ Mahindra Manulife Multicap Badhat Yojana
~ Invesco India Gold Fund
Which is the best SIP to invest in?
Some of the popular SIPs are:
~ Whole Life Mid-Cap Equity Fund by Tata AIA Life Insurance
~ Growth Opportunities Plus Fund by Bharti AXA
~ Individual Pure Equity Fund by Aditya Birla Sun Life
~ Whole Life Aggressive Growth Fund by Tata AIA Life
What is the difference between SIP and a monthly one-time investment?
Investments in Mutual Funds are possible in different ways including the SIP or Systematic Investment Plan method or the one-time investment method. Under the SIP method, you pay a regular sum of a particular amount for an extended period. On the other hand, in the case of a one-time investment, you pay a lump sum amount as a one-time payment for the same period. Use the SIP calculator online to check the returns you can earn.
What is the difference between SIP and PMS?
The key difference between SIP and PMS is related to the minimum amount that can be invested in the fund. You can start a Mutual Fund SIP with a low fund amount of INR 100. However, in the case of PMS, you need to invest a minimum amount of INR 50 lakhs to start the plan.
Another difference between the two funds lies in the strategy of investment based on risk and return.
Shall I carry on my SIP investment on a weekly or monthly basis?
Getting a weekly SIP or systematic investment plan might lead to a lot of paperwork and an increased requirement to keep yourself updated with transaction tracks. Hence, you can avoid it by getting a monthly SIP to achieve ease of investment.
Can I withdraw SIP money anytime?
Yes, the SIP amount can be withdrawn anytime. But you must note some exceptions in the form of lock-in periods of some SIPs. For instance, ELSS comes with a lock-in period of three years and child fund plans have a lock-in period of 5 years etc.
Is monthly SIP a safe option?
SIP is a safe investment method when it comes to investing in mutual funds. SIP plans are regarded as a safe and convenient way to get your hands on India’s equity market via mutual funds. However, it is recommended to invest in mutual funds when the market conditions are not overrated.