5 key benefits of the best monthly income plans

A conservative investor or one nearing retirement should consider investing in monthly income schemes – for the reasons we outline in this article.

Every person wishes for a security blanket in troubled times. The loss of regular income, unexpected incidents resulting in major tragedies and rising living costs can all jeopardise your peace of mind. If you wish for a financial safety net for the future, while also having a supplementary income to support your expenses, then you should consider investing in monthly income plans.

What are monthly income plans?

Monthly income plans are often classified under life insurance policies. However, the premium you pay is invested in hybrid mutual fund schemes. Most of the money paid – about 80% in most cases – is invested in debt classes like Government securities and debentures. The rest is invested in equity instruments. The monthly income scheme is expected to generate regular returns that are paid back to the investor.

Their thrust on debt securities scuppers most of the risk associated with the investment. They are recommended for conservative investors. However, an increased investment in equity options can help create more growth for the fund, if you stay invested over the longer term.

Consider the benefits of investing in monthly income plans

  1. Better returns than FDs. Monthly income plans from reputed fund houses and insurance providers have performed well on the markets. In some cases, the plan has done better than traditional debt instruments like fixed deposits. If charted over a three-year horizon, the best monthly income schemes have consistently beaten inflation and have shown higher growth than FDs while also being tax-efficient.
  2. Flexibility to choose dividend or growth. As an investor, you have the option of choosing the dividend or growth option for monthly income plans. Under dividends, the fund house pays regular income out of the company’s surplus profits. But these may not necessarily be paid on a monthly basis – they are paid whenever the company declares distributable surplus. However, it offers a regular source of income. Meanwhile, under the growth option the profits of the company are added to the fund’s NAVs to create higher growth.
  3. Flexibility to choose exposure to equity and debt. You also get the freedom to choose how much exposure the fund should have to equities and debt respectively. If you have a slightly higher risk profile, you can even look for monthly income schemes that invest as much as 30% in equities. However, the higher the equity exposure, the higher is the volatility.
  4. Easy purchase process online. Leading fund houses offer customers an easy look into the plan and an even easier online purchase process. You can even post specific queries and the online chat bot will answer them, or a company representative will call you back.
  5. An affordable plan option. The best monthly income plans offer relatively low premiums to begin with, but even lower premiums for woman applicants and non-smokers.

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