header Investment Plans

How To Get Monthly Income From Investment In India

28 May 2022, 12:53 PM

Making a smart and planned investment schedule is of the utmost necessity for securing the financial future in a hassle-free manner. It helps to attain financial targets easily. Moreover, the money invested in variable schemes generate returns and secures the avenue for having a regular income flow.

Before settling for any particular investment option, it is very important to consider all the relevant pros and cons associated with it. There are a host of investment opportunities that are currently in circulation in the market which have been specifically crafted to fulfil certain particular types of financial requirements. While investing, it has to be made sure that the monthly necessities are accurately met with relevant monthly income flow along with wealth corpus enhancement to fulfil the long-term goals.

Investments with monthly income benefits

 

           1. Mutual funds with monthly income plans (MIPs)

Here, the investment is principally done in debt instruments with slight exposure in equity. The accumulated interest is periodically distributed among the investors. When compared to equity investment schemes, the monthly income plans are supposed to be comparatively less risky and are ideal for the investors who are seeking monthly income flow and want a short-term fund accumulation.

ProductMIPs
Offered ByMutual Fund Houses
Investment TypeDebt Oriented Hybrid Funds
Who can buy it?Anyone
ReturnMarket Linked
TenureNo limit
Investment LimitNone
LiquidityHigher than most schemes
RiskModerate to Low
Investment Component70% – 80% in debt funds and the remaining in equity
Suitable forConservative and risk-averse investors 
Tax BenefitNone

 

            2. Post Office MIS

This is an ideal investment instrument for investors seeking fixed, regular monthly income flow supported by guaranteed returns. The rate of interest is declared by the Post office every year and is fixed for the entire duration of 5 years. There is a procedure of premature withdrawal in case the depositor expires. A maximum of INR 4.5 lakhs can be invested in a Post office Monthly Income Scheme or PO MIS for a tenure of 5 years at the mentioned guaranteed rate.

ProductPO MIS
Offered ByPost offices
Investment TypeTerm Deposit with a guaranteed rate of interest
Who can buy it?Anyone
Return6.6% p.a. payable monthly
Tenure5 years
Investment LimitINR 4.5 lakhs in a single account and INR 9 lakhs in a joint account
LiquidityAllowed after 1 year from date of deposit
RiskLow
Investment ComponentDebt Investment
Suitable forConservative and risk-averse investors 
Tax BenefitInterest is taxed in the hands of the depositor

 

            3. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Specially designed for senior citizens, PMVVY offers a stable monthly income flow based on a rate of 7.4% p.a. The policy term is 10 years. The annuity is paid on monthly, quarterly, half-yearly or annually as the policy term ends, abiding by the choice of the payment mode selected by the investor. 
A minimum amount of INR 1,56,658 needs to be paid to avail an annuity of INR 12,000 per annum.

ProductPMVVY
Offered ByLIC of India, backed by the Government of India
Investment TypeInsurance cum pension scheme for the senior citizen
Who can buy it?Senior citizens aged 60 years and above
Return7.40% p.a. payable monthly, quarterly or annually
Annuity payable for 10 years + Maturity/Death Benefit is paid
Tenure10 years
Investment LimitPension of INR 1.11 lakhs annually
LiquidityLow
RiskLow
Investment ComponentInsurance + Annuity
Suitable forConservative and risk-averse investors 
Tax BenefitAn annuity is taxed in the hands of the depositor

 

            4. Post Office Senior Citizen Savings Scheme (SCSS)

Designed for senior citizens, this scheme can also be availed by the individuals of 55 years of age, provided they have applied for voluntary retirement or superannuation option. The current rate of interest in SCSS is 7.4%, payable at the end of each quarter. The minimum investment amount is INR 1,000 while the optimum limit is INR 15 lakh. Moreover, the investments under this scheme are eligible for tax deduction under Section 80C of the Income Tax Act.

ProductSCSS
Offered ByPost office
Investment TypeTerm Deposit Scheme for the senior citizen of India
Who can buy it?Senior citizens aged 60 years and above
Return7.4% per annum
Tenure5 years
Investment LimitINR 15 lakhs
LiquidityAllowed after 5 years lock-in period 
RiskLow
Investment ComponentInsurance
Suitable for

Any individual above 60 years of age

Retired civilians between 55 and 60 years, subjected to the investment done within 1 month of receiving the post-retirement benefits 

Retired Defense employees above 50 years and below 60 years, subjected that the investment is done within 1 month of receiving the post-retirement benefits 

Tax BenefitQualifies for tax benefits under Section 80C of the ITA

            

            5. Dividend-paying stocks

This is a great investment tool for generating monthly income. However, before investing under this scheme, careful homework and background check is essential if the company has paid regular dividends in the past.

ProductDividend-paying stocks
Offered ByBoth public and private companies 
Investment TypeA share of the company’s profit amongst its shareholders 
Who can buy it?Any investor with a potentially higher risk appetite 
ReturnDividend yield ranges up to 1x to 2x G-sec yields 
TenureNone
Investment LimitTDS @10% are applicable if the income exceeds INR 5,000 in one financial year 
LiquidityFair
RiskModerate
Investment ComponentStock market 
Suitable forRetirees and those who are nearing retirement 
Tax BenefitClassified as “Income from other sources”, these are taxed as per the applicable tax rates applying TDS

            

            6. NBFC Fixed deposits

The FDs are offered by banks, NBFCs, post offices and companies. The FDs of the companies and NBFCs offer a higher rate of interest. The interests are generally provided by the companies either on a quarterly or half-yearly basis. Moreover, the rates get enhanced by up to 0.25%-0.50% for senior citizens. But, one thing must be kept in mind that there runs a slight risk of delay or default of payment. To cover this ground, the investor needs to ensure that the chosen company has secured a consistent AAA rating from ICRA or CRISIL.

ProductNBFC Fixed Deposit 
Offered ByNon-binding financial companies 
Investment Type40%-50% from banks and the remaining from debt capital markets 
Who can buy it?Anyone 
ReturnLower than the ceiling rate of 12.5%p.a.
Tenure12 months – 10 years
Investment LimitNone
LiquidityApplicable after the completion of the lock-in period 
Risk‘AAA'-marked instruments carry minimal risk
Investment ComponentSavings+stock 
Suitable forAll kinds of investors 
Tax BenefitNone

 

            7. Corporate deposits 

There are innumerable non-banking financial institutions or NBFCs and Housing Finance Companies or HFCs that offer corporate deposits. These investments are like bank deposits but offer less security. The corporate deposits offer high rates of interest with added flexibility benefits compared to bank deposits. the financial strength and the credibility of the NBFC or HFC must be ascertained before choosing for investing.

ProductCorporate Deposits 
Offered ByBoth financial and non-financial companies 
Investment TypeTerm deposit with guaranteed returns 
Who can buy it?Anyone 
ReturnRanging between 5.5% and 8% approx. 
Tenure1 year to 5 years
Investment LimitDiffers from company to company 
LiquidityPossible after the lock-in period of 3 months 
RiskLow
Investment ComponentSavings
Suitable forAll
Tax BenefitIf the annual interest income exceeds INR 5000, it is taxable under the highest tax bracket 

 

            8. Equity share dividend 

This investment option allows long-term investment gains along with a monthly income facility. But the risk factor is significantly high in this respect. A considerably diverse portfolio involving several stocks is essential for facilitating a high dividend payout ratio. 

ProductEquity share dividend 
Offered ByBoth public and private sector companies 
Investment TypeStock 
Who can buy it?Anyone
ReturnDividend yield = Cash dividend/share÷Market price*100
TenureDiffers from company to company 
Investment LimitNone
LiquidityPossible 
RiskModerate
Investment ComponentEquity shares 
Suitable forInvestors with a moderately high-risk appetite 
Tax BenefitInterest deduction limits at 20% of the gross dividend income

 

            9.Annuity 

Most of the insurance companies in the country offer annuity schemes with low risk and regular income flow. This can be utilised as a retirement strategy. The deferred annuity plans provide money after a fixed term set by the investor has elapsed while immediate annuity offers immediate payout as soon as the lump-sum payment is done. However, there are several charges to be paid under this scheme.

ProductAnnuity
Offered ByInsurance companies 
Investment TypePension Plan 
Who can buy it?Deferred annuity: Anyone
Immediate Annuity: Usually more than 40-45 years of age who wish to start annuity immediately and can pay a lump sum amount of money as the purchase price
Return4-6% p.a
TenureLifelong
Investment LimitNone
LiquidityOption to commute 60% of the corpus for a deferred annuity plan and none for an immediate annuity
RiskLow
Investment ComponentTax-deferred investment growth 
Suitable forPeople who wish to get guaranteed earnings post-retirement
Tax BenefitTax-deferred as the annuity is taxable in the hands of the annuitant. However, the premium paid towards annuity plans is tax-free u/s 80CCC upto INR 1.5 lakhs a year.
Also, in deferred annuity plans, 1/3rd of the entire corpus can be withdrawn tax-free U/S 10(10)A.

 

            10. Long-term government bond 

This is another low-risk investment option with once or twice a year interest payout. It can collaborate with other investment options and interest earned throughout the year. The investor is free to sell these as and when they wish as these are traded in the secondary market. However, the lock-in period can range from 15 to 20 years.

ProductLong-term government bonds
Offered ByPublic sector organisations 
Investment TypeSecurities 
Who can buy it?Anyone 
Return7.15% p.a.
Tenure5-40 years
Investment LimitNo specific limit
LiquidityComes with a lock-in period of 5 years
RiskLow
Investment ComponentLow-risk investment with guaranteed returns 
Suitable forRisk-averse investors 
Tax BenefitInvestment up to INR 20,000 is eligible for tax deduction under Section 80CCF above the INR 1 lakh deduction available under section 80C

Importance of monthly income-generating schemes

 

Before settling for any investment option, all the associated pros and cons must be carefully studied in respect of the financial targets, risk appetite and the overall asset value. The monthly income-generating schemes are ideal for senior citizen investors and those who have retired. This sort of scheme ascertains the regular monthly income flow fulfilling the short-term goals.

Earn Monthly Income from your investments

Although different individuals have different financial goals, needs and targets; securing monthly income flow is probably common for all. Therefore, after careful consideration of the relevant factors for wealth creation, financial security, and tax planning are essential in this respect to make the right choice and reap the optimum benefits.