Identification

• An MIP mutual fund is not any one specific type of fund. MIP funds are identified as funds with a high percentage of interest-bearing or dividend-producing securities. The goal is to produce monthly income. Ideally the income should remain stable and the MIP fund should have at least a five-year history in doing so. Investors looking for MIP funds should consider funds falling into the following categories: income funds, balanced funds and high-yield funds. Some growth and income funds fall into the MIP category as well.
  
  

Mechanics

• An investor first needs to consider how much income is required from an investment and what level of risk meets comfort levels. MIP funds may have anywhere from five to 30 percent equity (stock) holding. Generally the more stock a fund has, the higher it rates on the risk and fluctuation scales. Once the fund is selected, the investors will purchase the fund without having interest and dividends reinvested. All income into the fund is moved into a money market fund until the monthly aggregate earnings are distributed to the investor.
  
  

Benefits

• The benefit to investing in MIP mutual funds is that the income component allows investors to maintain monthly monetary necessities while attempting to grow the asset to keep up with inflation. Some MIP funds will outperform traditional fixed-income investments such as bank time certificates and fixed annuities. Funds with high stock holdings may also appreciate over time, further increasing the income ability of the investor.
  
  

Disadvantages

• MIP funds are mutual funds that fluctuate in value. The principal goes up and down based on the risk level and market conditions. Additionally, the income is not guaranteed since interest rates may decline or dividends may not be paid to shareholders in times of economic difficulties. Investors may find themselves wondering where the income went and why an "income investment" is declining in value. The result is investor dissatisfaction and distrust.
  
  

Strategies

• Financial advisers look at the overall investment and income needs of investors to create diversified portfolios. As part of a diversified portfolio, MIP funds help investors improve income in long-term strategies but should not be used as the primary investment. One strategy that can help mitigate monthly income changes is to elect quarterly payments rather than monthly payments for more dividend payment consistency.