Why MIPs are better than annuity products?

Ramesh was in his 50s with just 10 years before he got retired from his job in a private corporate firm. He was earning a good amount now but would it be enough? He had a home of his own and had invested his earnings that would give him Rs. 20,000 per month after retirement. But would that suffice?

By the time he is 80, he would require Rs. 1 lakh per month to maintain his current standard of living. Analysts suggest that investing in annuity products that are easily available in the market is not the solution. They tend to offer limited returns that could be around 6.7%. On the contrary, investing in public sector fixed deposits could give you a return of just around 7.5% only if you are a senior citizen. Both of these might not help to meet the cost of living that increases constantly with time. Monthly Investment Plan (MIP) is your best bet in this case.

What is MIP?

Monthly Investment Plan (MIP) is a debt-oriented mutual fund. It allows you to earn good returns to meet the rising cost of living. You can get monthly, quarterly or annual dividends with MIP. It has 80% invested in the debt market and 20% in equity.

Let’s understand this with an example:

You invest Rs. 100 in MIP. For the security of your investment, it would invest about Rs. 70 to Rs. 80 in government securities and other such debt funds. For better returns, it would invest the remaining Rs. 20 to Rs. 30 in the equity market with long-term profit potential.

Advantages of MIP

It can offer regular income for more than two decades after retirement.
You can withdraw your savings on a monthly, quarterly or annual basis.
You get a superior tax benefit than FD. If you hold MIP over 3 years, you can have your capital gains taxed at 20% with indexation.
Your returns are higher than that of Fixed Deposits and you get better protection from Inflation as well.
The returns you get in the long run could range between 11-14% as compared to 8-9% in fixed deposits.
There is no lock-in period so you can exit anytime you wish. Though you might have to pay an exit charge of 1%. There is no entry charge, however.

To sum it up

MIP gives a boost to your investment portfolio due to comparatively higher dividend returns. This provides you an extra edge in returns. It can help you maintain a low-risk profile portfolio and get stable, regular income. It is a dynamic investment product, however, returns are usually better than any other forms of debt investments. So, people with conservative as well as risk-taking attitude, both can benefit. Debt instruments take care of the regular income while the equities offer better returns on your investments. Ensure you consider all the factors, your own risk bearing capacity and then make an informed decision.