Amidst such a wide array of investment options actively in circulation in the market, it becomes a challenge which one to choose. The general trend of then investors shows that they seek a safe and secured source of investment with minimal risk involved and assured returns. The retired senior investors look for a regular monthly return for a safe and secured old age.
What is a Monthly Income Scheme?
Planned investment leads to financial growth building up a significant wealth corpus after a considerable period of time. The Monthly Income Scheme is the most convenient investment option which has been specially crafted for the senior citizens and the investors with lower risk appetite.
One of the most highlighting features of the Monthly Income Scheme is that it ensures monthly returns providing a consistent and regular source of income. Moreover, the money generated through these sorts of recurring monthly returns is a form of dividend as well as interest.
Well, it must be kept in mind, that monthly return investments are also dependent on the nature and overall performance of the market. Therefore, the monthly returns are not fixed like any other strategic investment policy. The returns are therefore governed by the profit generated.
Almost 80% of the monthly income policies are moved to the debt funds while the remaining 20% to 30% moves to the stock options. This sort of steady return policies offers capitalisation of the investment via relevant exposure to equities.
Types of Monthly Income Schemes in India
The following are the types of products that offer Monthly Income Schemes in India:
- Post Office Monthly Income Schemes
This is a facility offered by the Post Office, wherein an amount of maximum INR 4.5 lakhs can be deposited in a savings account of a Post Office for a tenure of maximum 5 years and the deposited yields an interest rate of 7.6% per annum. The interest in this scheme is disbursed on a monthly basis and hence the name POMIS. This scheme is recognised and validated by the Ministry of Finance.
- Mutual Fund Monthly Income Scheme or MIP (Monthly Income Plan)
It is a debt-oriented hybrid mutual fund with 70-80% of the investment in debt instruments and the remaining in equity. The Monthly Income Schemes can be broadly divided into two categories—growth-oriented and dividend-oriented.
- Growth-oriented
Under this sort of Monthly Income Scheme, the earnings are accrued upon the capital to the entire invested amount. The growth-oriented schemes actively facilitate the growth and development of wealth corpus. - Dividend-oriented
Here, the earnings are in the form of dividends. Alongside, there is the option of tax levy upon the total amount of payable dividend. The dividends are paid depending on the total distributable profit and only when the scheme earns profit in the market.
Advantages of Monthly Income Schemes in India
- Low Risk
One of the most likeable features for the popularity of Monthly Income Schemes is that there is considerable low-risk involvement. This happens as the money of the investor gets involved in securities. These securities themselves carry low risk like the dividend stocks, fixed income tools, preferred shares, etc.
- Enhanced Return
When compared to any other monthly deposit schemes or fixed deposit investment, this sort of Monthly Income Scheme offers enhanced return assurance.
- Guaranteed Income
There is the assurance of guaranteed monthly returns. With low-risk involvement, this is another highlighting factor that has led to the wide popularity of this sort of Monthly Income Schemes.
- Open-ended
It is considered that to become the best, any monthly income option needs to be open-ended. This means that there is no need for any sort of processing charges while beginning such a scheme. Along with this, there is also the exit-load factor, which is less than 1% of the entire assured amount.
- Flexibility
The amount to be invested in a monthly investment strategy depends upon the financial capacity of the investor. It is flexible enough not to set an upper limit of investment. The investor is free to choose and set his/her own limits.
- Better Management of the Funds
One of the most assuring factors of monthly investment options is that the funds are managed by knowledgeable experts who possess a coherent understanding of the market trends. They decide which is the best time to switch the funds from equities and debts and vice versa.
- Liquidity
Monthly investment options are more liquid when compared to any other investment schemes. The lack of lock-in period is a major flexible factor that allows the investor to redeem the invested amount as and when required especially in case of any unprecedented emergencies.
Tax Implications of Monthly Income Scheme in India
The Post Office MIS payout is not subject to TDS deduction and is taxed as per the income slab of the individual and does not qualify under section 80C of the Income Tax Act. Hence there is no tax advantage of investing in a Post Office MIS.
However, Monthly Income Schemes are offered by Mutual Funds which are debt-oriented hybrid mutual funds and hence subject to debt taxation in India.
If the investment is held for a tenure of 36 months(3 years), then the investment qualifies for the long term capital gain (LTCG) and is taxed at 20% after indexation benefit. Else, it qualifies for short term capital gain taxation (STCG) and is taxed as per the income slab of the individual.
| Type of Capital Gains | Investment Tenure | Income Tax |
| Short term capital gains (STCG) | Investment < 36 months | Taxed as per slab |
| Long term capital gains (LTCG) | Investment >= 36 months | 20% after indexation |
When to Invest in a Monthly Income Scheme in India?
The monthly investment options are one of the most flexible and feasible investment options that create a perfect balance between reward and risk. This sort of investment is most ideally suited for retired persons and senior citizens or for people with a limited income source. It provides a secured planning strategy against any sort of unforeseen emergencies.
Any investor belonging to the high tax bracket is suitable to invest in the Monthly Income Scheme because it is tax effective. Low tax bracket investors are also eligible for this investment as it will provide an enhanced scope of income with better prospects. Monthly Income Scheme considerably reduces the tax liabilities.
Summary
From the above discussion, it is evident what are the prospects of Monthly Income Schemes. Before settling for any scheme careful consideration is essential to judge the assurances of the scheme and the relevant necessities of the investor. This is the key rule for any successful investment.