Bank FDs and Post Office deposits are some of the extremely secure options, whereas the mutual fund Systematic Withdrawal Plan (SWP) is among the slight risky options.
Fixed monthly regular income options are generally looked at by individuals who are close to retirement or have already retired. It is so because senior citizens or individuals without a stable source of employment want a fixed source of stable income which is also safe.
There are various monthly income options available in the market today such as Post Office Monthly Income Schemes (MIS), Fixed Deposit MIS, Mutual Fund SWP, etc., but they vary with what they offer. For instance, bank FDs and Post Office deposits are some of the extremely secure options, whereas the mutual fund Systematic Withdrawal Plan (SWP) is among the slight risky options.
Also, note that for certain government-backed MIS options, senior citizens are eligible for comparatively higher interest rates. Hence, depending on your risk appetite and goals, you should choose between the various options available.
Here are some of the monthly income options to choose from:
1. Post Office MIS – Post Office MIS (monthly income scheme) is one of the secure investment avenues, being backed by the Central government. Post Office MIS can be opened by either an individual or by 2 to 3 people with an equal share of investment and comes with a tenure of 5 years.
Investors holding a single account can make investments up to Rs 4.5 lakh, whereas with a joint account the investment amount can go up to Rs 9 lakh. The Post Office MIS currently offers an interest of 6.6 per cent on investments. Starting from the date of deposit, the interest is payable monthly to the account holder.
2. Post Office Senior Citizen Savings Scheme (SCSS) – The Post Office SCSS is not limited to individuals who have attained the age of 60 years, but also people who have attained 55 years of age can open a Post Office SCSS account, subject to the condition that he/she is retiring on superannuation or under any Voluntary Retirement Scheme (VRS).
Even though the SCSS scheme comes with a maturity period of 5 years, it can be extended for a further 3 years within 1 year of maturity. Currently, the interest rate offered on post office SCSS is 7.4 per cent per annum, which is payable quarterly at the end of each quarter. Individuals can make a minimum investment of Rs 1,000 to a maximum of Rs 15 lakh. Note that, the interest earned on the deposit is not exempted from income tax, however, the deposits made in the SCSS scheme are exempt from income tax under Section 80C of the Income Tax Act, 1961.
3. Pradhan Mantri Vaya Vandana Yojana (PMVVY) – PMVVY not only offers senior citizens a stable income but also social security. Under the PMVVY, there is no maximum age limit set for senior citizens. Individuals can also opt for this scheme by paying a lump sum amount ranging from Rs 1.5 lakh to a maximum of Rs 7.5 lakh, for monthly pension. Currently, this scheme offers 7.4 per cent interest per annum. The rate of return has been reduced and extended until March 2023. Along with maturity benefits, PMVVY also offers pension payment and death benefits.
4. Fixed Deposits MIS – With guaranteed returns at a certain rate of interest every month, Fixed Deposit Monthly Income Schemes offer regular fixed income. Depending on the bank, the duration of the FD monthly income scheme goes up to 10 years. The interest in these schemes is usually paid at a discounted rate for monthly payout fixed deposits. Hence, experts say individuals can opt for this option if he/she wants to earn guaranteed returns at a certain rate of interest every month. Under the FD monthly income scheme, withdrawals can also be made (the invested amount) before maturity.
5. Mutual Fund SWP – Through the systematic withdrawal plans (SWP) investors can earn a regular income from their investment in mutual funds, similar to other MIS schemes. With the systematic withdrawal plans, investors can specify a certain fixed monthly payout which is paid on the designated date by redeeming the units of funds at the time of starting the investment. The Mutual Fund SWP comes with both the regular and dividend option, however, the dividend payout is not guaranteed. The dividend option depends on fund performance and market movements.
Individuals also get the option of opting for debt schemes, apart from equity schemes. Keep in mind that the short-term gains of debt mutual fund investments are taxed according to an investor’s tax slab if the investments are redeemed before 3 years.