Not simple but not too difficult either
MIP or monthly income plans are designed to give you monthly cash flows to meet your expenses. MIPs can be bought off the shelf from mutual funds and insurance companies but they also come with high expenses if guaranteed and this drops returns drastically while mutual fund MIPs can face volatility on market movements.
There are other ways to create your own MIP where you can invest in a wider array of securities and even include MIPs of mutual funds and insurance companies if so desired. Let us take you through the process of creating your own MIP that can meet your monthly cash flow requirements, reduce volatility and keep expenses low.
Low expenses, low volatility and good cash flows
MIPs are best when they generate enough cash for you to meet expenses and also take care of inflation that automatically increases your expenses. Hence the portfolio has to have the right mix of bonds for regular cash flows and equities for growth to take care of inflation. The mix can be varied depending on personal comfort and market conditions.
Identifying the right bonds and stocks is important to keep capital safe and generate adequate returns and cash flows. The cost of building and maintaining the MIP should be low
Constructing the MIP portfolio
The set of cash flow generating assets that go into the MIP portfolio should include bonds with varying maturities, stocks that pay out high dividends as they generate consistent cash across economic and market cycles, InvITs and ReITS as they generate cash flows.
Direct bonds and equities or fixed income mutual fund schemes and equity schemes depending on the individual preference. The portfolio should generate good levels of cash overall with a bit of growth coming from equities. Liquidity too will be good given equities and liquid bonds.
The mix of assets will depend on each individual preference and each asset can be weighted accordingly.
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