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Can a Monthly Income Plan Replace Your Salary?

2 weeks ago

Introduction

The idea of earning money without going to work every day is appealing to almost everyone. Imagine having a steady flow of income even after retiring or taking a career break. This is where the monthly income plan comes into play. Often seen as a tool for generating consistent returns, it raises an important question: Can a monthly income plan actually replace your salary?

In this blog, we will break down how monthly income plans (MIPs) work, the kind of returns you can expect, their advantages and limitations, and whether they can realistically substitute for a steady paycheck.

Understanding a Monthly Income Plan (MIP)

A monthly income plan is a type of hybrid mutual fund designed to generate periodic income while safeguarding the invested capital. It typically allocates 70–80% to debt securities (such as government bonds and corporate debentures) for stability and 20–30% to equities for growth.

Investors can choose between two options:

Dividend Option: Provides regular payouts (monthly, quarterly, or annually, depending on fund performance).
Growth Option: Profits are reinvested, compounding the wealth over time.

Why People Compare MIPs with Salaries

A salary is steady, predictable, and received on a fixed date each month. MIPs, on the other hand, are designed to generate regular income, which makes them attractive to retirees, freelancers, or anyone who wants an additional cash flow. The big difference is that while a salary is guaranteed by your employer, MIP payouts depend on fund performance and market conditions.

How Much Can You Earn from a Monthly Income Plan?

To determine if MIPs can replace a salary, let’s look at some earning scenarios.

Example 1: Moderate Investment

Investment Amount: ₹10,00,000
Average Annual Return: 8%
Annual Earnings: ₹80,000
Monthly Income: Around ₹6,600

Example 2: Larger Investment

Investment Amount: ₹50,00,000
Average Annual Return: 8.5%
Annual Earnings: ₹4,25,000
Monthly Income: Around ₹35,000

Example 3: High Corpus for Salary Replacement

Investment Amount: ₹1,00,00,000
Average Annual Return: 9%
Annual Earnings: ₹9,00,000
Monthly Income: Around ₹75,000

👉 These examples show that MIPs can generate steady cash flow, but whether it can replace a salary depends entirely on how much you invest.

Advantages of a Monthly Income Plan

1. Steady Cash Flow

Though not guaranteed, payouts can mimic monthly salary receipts, especially for retirees.

2. Lower Risk Profile

Compared to equity-heavy funds, MIPs offer lower volatility due to their higher debt allocation.

3. Inflation-Adjusted Growth

Equity exposure helps MIPs provide returns that usually outpace inflation, unlike fixed deposits.

4. Tax Efficiency

Long-term gains (beyond 3 years) are taxed at 20% with indexation benefits, often resulting in lower tax liability compared to fixed deposit interest.

Limitations of a Monthly Income Plan

1. No Guaranteed Payouts

Unlike a salary, MIPs don’t assure fixed monthly income. If the fund underperforms, payouts can be reduced or skipped.

2. Market Risk

The equity portion makes MIPs vulnerable to market fluctuations.

3. Not Suitable for Short-Term Needs

MIPs are best suited for a medium to long-term horizon (3–5 years).

4. Large Corpus Requirement

To truly replace a salary of ₹50,000 or more per month, investors need a very large corpus—often in crores.

Can MIPs Replace Your Salary? Let’s Compare

1. Reliability

Salary: Fixed and guaranteed.
MIP: Dependent on market performance; not guaranteed.

2. Amount of Income

Salary: Determined by job role, company, and contract.
MIP: Determined by corpus invested and fund returns.

3. Growth Potential

Salary: Can increase with promotions and increments.
MIP: Can increase with market growth but also carries risk of decline.

Verdict: MIPs can supplement but not fully replicate the certainty of a salary unless the corpus is very large.

Who Should Consider Using MIPs as a Salary Replacement?

1. Retirees

Retired individuals who no longer have active income can use MIPs as a substitute for their monthly paycheck.

2. Financially Independent Individuals

Those who’ve built large investment portfolios can rely on MIPs for a steady income stream.

3. Freelancers or Consultants

MIPs can provide stability when project-based income is irregular.

4. Families Seeking Supplementary Income

Households with EMIs or school fees can benefit from additional income from MIPs.

Who Should Avoid Using MIPs as Salary Replacement?

Young professionals who need reliable, predictable income.
Individuals with small savings, as returns may not meet monthly expenses.
People uncomfortable with even small fluctuations in income.

Strategies to Make MIPs Work as Salary Replacement

1. Combine with Other Investments

Use MIPs alongside FDs, bonds, or pension funds to diversify income.

2. Reinvest Dividends When Not Needed

Build a larger corpus by reinvesting payouts, making it possible to generate higher income later.

3. Opt for Growth + Systematic Withdrawal Plan (SWP)

Instead of relying on uncertain dividends, use an SWP to withdraw fixed amounts monthly. This creates a more “salary-like” structure.

4. Plan Corpus According to Lifestyle

Estimate monthly expenses and invest enough to generate 70–80% of that through MIPs, with other investments covering the rest.

Real-Life Scenario

Let’s say someone wants to replace a ₹50,000 monthly salary.

Required Annual Income: ₹6,00,000
Average MIP Return: 8%
Corpus Needed: ₹6,00,000 ÷ 0.08 = ₹75,00,000

This means you’d need ₹75 lakhs invested in an MIP to generate ₹50,000 per month. For higher salaries, the corpus requirement increases significantly.

The Role of Monthly Income Plans in Financial Freedom

While MIPs may not fully replace a salary for most people, they play a crucial role in achieving financial independence. By combining them with other income sources—like rental income, dividends from stocks, and pensions—they can form part of a robust passive income strategy.

Conclusion

So, can a monthly income plan replace your salary? The honest answer is: not for everyone. For individuals with a very large corpus, MIPs can indeed generate income close to or even equal to a monthly paycheck. However, for the average investor, MIPs are better viewed as a supplementary income source rather than a complete replacement.

They are most effective when used strategically—combined with other investments, reinvested for growth, or structured through a systematic withdrawal plan. For retirees, freelancers, or financially independent individuals, MIPs can provide a dependable stream of income that feels salary-like. But for most working professionals, a monthly income plan is best seen as an additional layer of financial security rather than a substitute for an active salary.