Monthly income schemes vary from extremely secure options to some slight risky options. One should choose between these options depending on one's goals and risk appetite.
A fixed monthly income is a preferred choice for individuals who are close to retirement or who have retired. It is important for senior citizens who are in need of a fixed source of stable income which at the same time is also safe. Fixed monthly income is essential for individuals who do not have a stable source of employment. Senior citizens are eligible for certain government-backed monthly income scheme options that provide marginally higher interest rates and are secure.
Monthly income schemes vary from extremely secure options such as bank FDs, Post Office deposits to slight risky options such as mutual fund SWP. One should choose between these options depending on one’s goals and risk appetite.
If you are looking for investment options which also offer steady monthly income, take a look at these options;
Monthly Income Fixed Deposits Schemes: For investors who want to earn a regular fixed income with guaranteed returns at a certain rate of interest every month, Fixed Deposit (FD) monthly income schemes are an ideal option. The duration of these deposits can go up to 10 years, depending on the scheme and banks. Investors can also withdraw the invested amount before maturity. The interest in these schemes is normally paid at a discounted rate for monthly payout FDs.
Post Office Monthly Income Scheme (MIS): Backed by the Central government, the Post Office Monthly Income Scheme (MIS) is one of the most secure investment avenues. One can make a minimum amount of investment of Rs. 1,500 and the maximum investment limit is set at Rs. 4.5 lakh in a single account and Rs. 9 lakh in a joint account. The current interest rate offered on this investment is 7.3 per cent. Commencing from the date of deposit, the interest is payable monthly.
The Post Office Monthly Income Scheme comes with a maturity period of 5 years. This account can be opened by an individual or 2-3 people with an equal share of investment. After one year but before 3 years, investors can avail premature encashment in MIS, at a discount of 2 per cent of the deposit and after 3 years at the discount of 1 per cent of the deposit.
Post Office Senior Citizen Savings Scheme (SCSS): This deposit scheme is for individuals who have attained the age of 60 years. Individuals who have attained the age of 55 years but are less than 60 years, can also open the account, subject to they are retiring on superannuation or under any Voluntary Retirement Scheme (VRS). The current interest rate offered on the Senior Citizens Savings Scheme (SCSS) is 8.7 per cent per annum. The interest is payable quarterly at the end of each quarter. SCSS comes with a maturity period of 5 years which can be extended for a further 3 years within 1 year of maturity. The minimum investment is set at Rs 1,000 and the upper limit of investment is set at Rs 15 lakh.
Investors can also opt for premature closure after 1 year on deduction of an amount equal to 1.5 per cent of the deposit and after 2 years 1 per cent of the deposit. 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.
Pradhan Mantri Vaya Vandana Yojana (PMVVY): This scheme is meant for senior citizens especially to provide social security during old age. Pradhan Mantri Vaya Vandana Yojana (PMVVY) provides senior citizens with a stable income which is not affected by the change in interest rates. There is no maximum age of entry in the scheme for senior citizens. This scheme provides an assured rate of return ranging from 8 per cent to 8.30 per cent per annum. One can 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.
During the policy term of 10 years, as per the frequency mode is chosen by the pensioner at the time of purchase (monthly/quarterly/ half-yearly/yearly), the pension is payable at the end of each period. PMVVY also comes with the benefit of pension payment and death payment along with maturity benefits.
Mutual fund schemes with the Systematic Withdrawal Plan (SWP): Through systematic withdrawal plans (SWP) investors can earn a regular income from their investment in mutual funds. Investors can specify a certain fixed monthly payout which is paid on the designated date by redeeming units of the funds. Though these schemes come with both regular and dividend options, the dividend payout is not guaranteed as it depends on the fund performance and market movements.
Experts suggest one can also opt for debt schemes, apart from equity schemes. If redeemed before three years, the short-term gains of debt mutual fund investments are taxed according to the investor’s tax slab. Also, a Dividend Distribution Tax (DDT) at the rate of 10 per cent on the dividend options of equity funds is added.