If you have surplus liquid cash in your hands, you can consider investing it in different schemes that offer monthly returns. Read on to more about regular income investment plans.

The monthly income investment plans are specially designed for investors with low-risk appetite. Such plans allow you to park your surplus savings in low-risk schemes. Investing in a monthly income plan is an ideal choice for senior citizens and other risk-averse investors seeking a steady income source or want to create an alternative source of income. Most of these plans generate income through dividends or interest.

One of the important things to know about monthly income plans is that such plans may not offer fixed returns. Depending on the type of scheme you invest, you get market-linked returns and the amount received will vary based on the profits generated by the underlying securities.

The monthly income schemes generally invest in debt-oriented instruments, and about 70 t0 80% of the funds are invested in debt funds, and the remaining amount is invested in stock options. This is done mainly to generate stead returns and capitalize on the high-returns opportunities of equity investments.

Key Features of Monthly Income Investment Plans

• Most monthly income schemes are highly flexible and do not have any limitation on the maximum investment amount. You can invest as much you want as per your capacity and the scheme’s terms and conditions.
• Typically, the monthly income investment options are open-ended schemes, which means you need not pay any processing fee to start investing. Additionally, such schemes have a lower exit load, which is less than 1% of the total investment amount.
• Monthly income plans are known to have higher liquidity than other schemes in the market. Since there is no lock-in period, you can choose to withdraw the funds at any time you want at your convenience.
• The monthly income plans are known to be safe investments as the money is invested in low-risk securities like fixed income instruments, dividend stocks, and preferred shares.
• Another significant feature of monthly income investment plans is that professional fund managers handle investments. These professionals use their years of experience and expertise to understand the investment market movements and make prudent investment decisions.

Types of Monthly Income Plans in India

There are two types of monthly income plans – dividend-oriented plans and growth-oriented plans.

• Dividend oriented monthly income plan

These plans generate returns in the form of dividends. The dividends are paid from the distributable surplus by the AMC (asset management company)when the fund earns a profit. The dividends paid on the investments are tax-free in the hands of the investors.

• Growth-oriented monthly income plan

Through this plan, the interest accrued on the capital is added to the initial investment amount. It allows investors to grow their wealth and build a sizeable corpus.

How are Monthly Income Plans Taxed?

Being a debt-oriented investment, the monthly income plans are liable for taxation. The returns earned from monthly income plans are termed as capital gains, and the tax depends on the duration for which the investment is held.

If you stay invested for less than three years, the returns are considered STCG (short-term capital gains) and taxed as per the applicable income slab. On the other hand, if you hold the investment for more than three years, LTCG (long-term capital gains) tax will be applicable at 20%.