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Monthly Income Schemes

Having a constant source of income is crucial in an unpredictable environment, particularly for those who are retired, have inconsistent income, or would rather have a stable stream of money to cover their bills. Monthly Income Schemes or MIS, give a structured financial plan with monthly distributions, which efficiently fulfils this aim. These schemes are well-liked by risk-averse Indian investors since they are created to yield income through investments.

Thus, in this article, we will explore the features, benefits, and best monthly income schemes, offering insights into why they might be the right choice for you. 

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Monthly Income Schemes

What are Monthly Income Schemes?

What are Monthly Income Schemes?
September 20, 2024

Table of Content

 

Monthly Income Schemes (MIS) are a type of investment product offered by various financial institutions and banks in India. These schemes are well-liked by people looking for a reliable source of income since they give investors a consistent income. MIS has a straightforward fundamental idea. In exchange for their lump sum investment into the program, investors get a set monthly income for a predetermined period of time. You can use this money to cover normal bills, add to your retirement fund, or utilise it for any other unfulfilled requirements.

In India, there are several MIS options available, each with unique features and advantages. Among the more popular kinds is the Post Office Monthly Income Scheme (POMIS), which is provided by India Post and is well-liked for its assured returns and safety. Then there are Bank Monthly Income Schemes, in which several banks provide their own MIS versions, sometimes with attractive interest rates and extra features. You also get Non-Banking Financial Companies (NBFCs) MIS, but investors should proceed with caution as they may entail greater risk than choices supported by the government.

It is crucial to evaluate various schemes depending on aspects like interest rates, lock-in durations, and tax ramifications when thinking about a managed investment strategy (MIS). Different institutions have varying interest rates, so it is wise to compare them to get the best offer. Furthermore, there are lock-in periods for some MIS, meaning investors are not allowed to take their money out before that time.

Features of Monthly Income Schemes

To understand monthly income plans in a detailed way, it is important to understand the features related to them. Below is discussion about some features of the monthly income scheme that you must know before opting for this as your investment plan:

  • Monthly Payout Options

The regular monthly payout scheme offered by monthly income plans is among their most alluring factors. Investors get a set income each month, which varies based on the rules of the program and the investment amount. This consistency guarantees that monthly costs can be met without drawing into other funds, which is helpful for financial planning. Depending on how the plan is set up, the payout might be either the interest on the principal or a percentage of the principal amount.

  • Premium Payment Flexibility

This is the most popular option, in which premiums are paid regularly, usually once a month, once every six months, or once a year. This makes budgeting simpler and ensures a steady cash flow. One lump sum payment can cover all future premiums for customers who have a sizable upfront payment. This may lead to cost savings and simplify the policy management procedure. Additionally, these plans enable policyholders to finish paying premiums within a predetermined time frame, often the initial few years of the policy. For people who wish to lower their future financial responsibilities or who expect a decline in income, this may be useful.

  • Customisable Payout Choices

Investors may choose from a variety of payment alternatives with Monthly Income Schemes to meet their specific goals and risk tolerance. Certain plans guarantee an income stream by offering a set dividend for a predetermined length of time. While some offer a fixed minimum payment with room for growth, others let investors take advantage of market gains without sacrificing steady income. Investors may adjust their investing plan to suit their unique risk tolerance and financial objectives thanks to this customisation tool.

  • Tax Benefits

A lot of monthly income schemes include tax benefits which might make them desirable investment choices.  Investments in certain schemes like the National Pension Scheme (NPS) and National Savings Certificate (NSC) provide deductions under Section 80C1, reducing the taxable income. These perks might be tax-free income payouts or premium payment deductions. Investors may be able to lower their overall tax liability and raise their net earnings by utilising these tax advantages.

Top Monthly Income Scheme Options

Now that you have an idea about the features of MIS, you need to understand the types of monthly income schemes available for you to choose from. Here is a list of the best monthly income schemes to choose from as per your suitability:

  • Post Office Monthly Income Scheme

A government-backed investment option called the Post Office Monthly Income Scheme (POMIS) is intended to offer investors a consistent monthly income flow. It is especially attractive to people who value consistent cash flows more than possible capital gains. Here are the features to look for in this scheme:

  • Guaranteed Returns: POMIS guarantees a consistent monthly income by providing a fixed rate of interest. It is therefore a dependable option for anyone looking for financial security.

  • Low Minimum Investment: A wide range of investors can participate in the plan due to its minimal investment demand.

  • Flexible Tenure: Investors may customise the program to meet their unique financial objectives and aspirations by selecting from a range of tenure choices.

  • Tax Benefits: POMIS is a desirable choice for those wishing to reduce their tax obligation since it provides a number of tax benefits1.

However, it is important to note that the interest rate offered by POMIS may be lower compared to other investment options.

  • Fixed Deposits

One of the popular investment options provided by banks and non-banking financial organisations is fixed deposits (FDs). They entail making a one-time lump sum investment for a predetermined amount of time in return for an assured rate of return. Here are the features to look for in an FD:

  • Fixed Interest Rate: FDs often have a fixed interest rate, which means that investors can expect a steady return on their investment.

  • Options for Maturity: A range of maturity durations, from a few months to many years, are available to investors.

  • Interest Payment Options: Depending on the investor's desire, interest may be paid quarterly, monthly, or yearly.

  • Security: Because FDs are backed by the financial institution that is providing them, they are typically regarded as safe investments.

FD interest rates, however, are subject to change over time and might not always keep up with inflation.

  • National Pension Scheme

A monthly income plan is intended to be provided after retirement through the National Pension Scheme (NPS), a government-sponsored retirement savings plan. This is a long-term investment choice that is appropriate for people who want to safeguard their financial future. Look below to know its features:

  • Tax Benefits: NPS provides several tax benefits1, such as tax deductions for contributions and tax-free retirement withdrawals.

  • Investment Alternatives: The plan offers a variety of investment alternatives, letting participants select the degree of risk they can afford.

  • Portability: NPS accounts may be easily moved to new fund managers or even various locations since they are transferable.

  • Retirement Benefits: When an investor retires, they can take out a lump sum from their investments and utilise the money left over to buy an annuity, which pays out a regular pension.

While NPS is a long-term investment, it may not provide immediate returns or monthly income.

  • National Saving Certificate

An investment option supported by the government that offers a fixed rate of interest is the National Saving Certificate (NSC). It is a popular option for anyone searching for a secure investment. Below are its features to look for:

  • Guaranteed Returns: NSC guarantees a consistent return on investment by providing a fixed rate of interest.

  • Tax Benefits: Investments in NSCs are eligible for tax breaks under a number of different tax laws.

  • Safety: NSC is regarded as a very safe investment because it is a government-backed security.

  • Maturity Period: NSCs are non-redeemable bonds that have a predetermined maturity time after which the principal and interest accumulated are paid out.

Overall, NSC does not offer a consistent monthly income, but it is a smart investment choice for building long-term wealth.

Why Should You Choose a Monthly Income Scheme?

There are several reasons to opt for monthly income schemes. The major ones are discussed below:

  • Regular Income

The guarantee of a consistent income stream is the primary attraction of monthly income plans. For retirees who do not receive a monthly pay cheque or who would rather have a consistent stream of income to cover their daily costs, this feature is quite helpful. Because they have a steady stream of income from these schemes, investors can better arrange their finances because they know they will always have money coming in.

  • Tax Benefits of Monthly Income Scheme

Tax-conscious investors find monthly payout schemes appealing because they often offer tax benefits1. For instance, Section 80C1 tax deductions are available for investments made in plans such as the National Pension Scheme and National Savings Certificate, which lower taxable income. 

These programs assist with efficient tax planning in addition to providing consistent revenue. However, before investing, it is crucial to comprehend the tax implications of each plan since certain alternatives, such as fixed deposits, may have taxable returns that might affect net income.

Invest in the Right Monthly Income Scheme

Choosing the right monthly income scheme requires careful consideration of various factors, including the investor’s financial goals, risk tolerance, income requirements, and investment horizon. Here are some tips to invest in the right best monthly income schemes:

  • Risk Tolerance: Determine your comfort level with risk. If you're risk-averse, opt for government-backed schemes like POMIS or NSC. For those willing to take moderate risks, FDs can be a suitable option.

  • Liquidity: Assess how easily you can access your funds. FDs and POMIS generally offer higher liquidity compared to NPS or long-term NSC investments.

  • Investment Horizon: Consider your financial goals and time horizon. If you need immediate income, POMIS or FDs might be ideal. For long-term retirement planning, NPS can be a valuable choice.

  • Minimum Investment: Check the minimum investment requirements of each scheme to ensure it aligns with your budget.

  • Tax Implications: Understand the tax implications of different schemes. Some schemes offer tax benefits on investments or withdrawals.

  • Fees and Charges: Be aware of any fees or charges associated with the scheme.

  • Interest Rates: Compare interest rates offered by different schemes. While government-backed schemes might have lower rates, they offer higher security.

  • Diversification: Consider diversifying your investments across different schemes to manage risk.

  • Professional Advice: If you are unsure about which scheme to choose, consult a financial advisor for personalised guidance.

Conclusion

Overall, if you are seeking a reliable and steady source of income, monthly income schemes are a great option for investments. These plans are perfect for retirees, pensioners, and cautious investors because they offer the dual advantages of financial security and consistent payouts. With a variety of options available, from government-backed schemes to fixed deposits, there is something to suit every investor’s needs. Now that you have an idea about the best monthly income schemes, make your decisions as per your needs and suitability.

With a variety of options available, from government-backed schemes to ULIPs which offer Life Insurance Coverage along  or fixed deposits, and even HDFC Life Guaranteed Income Insurance Plan that provide a reliable stream of income, there is something to suit every investor’s need.

FAQs on Monthly Income Scheme

Q. Which is the best monthly income scheme?

Financial objectives, risk tolerance, and personal preferences all influence the ideal monthly income plan. However, the government-backed Post Office Monthly Income Scheme is popular for its guaranteed returns. The flexibility and security of fixed deposits make them popular, but the National Pension Scheme is the best option for long-term retirement planning with tax advantages.

Q. Who should consider investing in a Monthly Income Scheme?

For anyone looking for a consistent source of income, particularly those who have retired or are getting close to retirement age, monthly income schemes are a great option. These plans usually combine loan and equity investments to provide a healthy mix of capital growth and income generation. They are especially appropriate for those who depend on a steady source of income to pay for other financial commitments or living expenditures.

Q. What are the benefits of a Monthly Income Scheme?

The primary benefits include regular income payouts, capital safety, low-risk investment, tax benefits1, and flexible investment options. These schemes provide financial stability, making them an attractive choice for risk-averse investors.

Q. What to consider before choosing a Monthly Income Scheme?

It is important to evaluate your time horizon, risk tolerance, and financial goals before investing in a Monthly Income Scheme (MIS). Think about the tax consequences, interest rate, and lock-in term of the arrangement. Post Office Monthly Income Scheme and other government-backed MISs provide stability but may have lower interest rates. Private MISs, such as those offered by mutual funds or banks, may be riskier but can yield greater profits. 

Q. How can one apply for a Monthly Income Scheme?

Applying for a Monthly Income Scheme (MIS) in India is a straightforward process. You can either visit a nearby post office or invest online through the India Post Payments Bank mobile app. To apply, you will need to provide your identity proof, address proof, and the amount you want to invest. Once your application is verified, the post office will issue you an MIS certificate. Remember to check the eligibility criteria and interest rates before applying, as they may vary.

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Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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1. Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.

HDFC Life Guaranteed Income Insurance Plan UIN: (101N146V04). A Non-Linked Non-Participating Individual Life Insurance Savings Plan.

2. Provided all due premiums have been paid and the policy is in force.

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