Why MIPs are better than annuity products?

Nutan Gupta

05 Jun 2017

New Page 1

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.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Why MIPs are better than annuity products?

Nutan Gupta

05 Jun 2017

New Page 1

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.

Have Referral Code?