Difference Between Monthly Income Plans MIPs and Systematic Investment Plans SIPs

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.

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:

1. MIP:

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.

2. SIP:

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.