These are basically debt oriented mutual funds which invest 75-80% of the corpus in debt and the rest in equity. These funds can be further divided into a monthly income plan with a dividend option and one with a growth option.
The dividend option helps to generate income in the form of dividends, which are tax free in the hands of the investors
In the growth option no dividend is paid .The amounts are reinvested in the fund itself. This increases the value of the fund and huge returns are obtained on liquidation of these funds.
If the MIP is sold for a profit within a year, it is called a short term capital gain. These amounts are added to your income and taxed as per the income tax slab you fall under. Long term capital gains beyond a year, are taxed at 20% with indexation benefits.