FMP, MIP or FD

What is the right time to invest in monthly-income plans (MIP)? Now that the interest rates have risen, will FMPs and MIPs give better returns than fixed deposits?
– Viren Shah

There is nothing like the right time to invest as long as the investment is based on a plan and financial goal. Moreover, the name MIP is a misnomer and an MIP may or may not give a monthly dividend. So, if you are looking for a regular income from an investment, MIP may not be the right fund. MIPs tend to give good returns when interest rates start to peak. When comparing the FMP and fixed deposit; if the two earn the same interest, on a post-tax basis, the FMP yields are better because of the way the FMP gain is taxed. But, unlike an FD, which guarantees the capital, FMPs neither guarantee the capital nor the interest.

This article was originally published on February 25, 2011.