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Making investments is the same as telling your money where to go. Rather than spending your hard-earned income on the things you don’t need, you’re giving your money a job to do—make you wealthier over time. Investing even a small amount regularly over a period of time can help build a significant corpus.
If you want to ensure a regular income later in life, putting your savings in a monthly investment plan can be a lucrative strategy. Additionally, as investments into these schemes are made monthly, it is often a preferred investment option among salaried individuals. In this article, let us understand everything about monthly investment plans, including some key features, benefits and taxation.
What is a Monthly Investment Plan?
A monthly investment plan, as the name suggests, it is a scheme where the investor make investments to receive a specific sum of money as pay out every month. This monthly pay out amount is based on investments that get accumulated in the scheme over time.
These are a number of monthly investment plans in India that provide a hassle-free way of ensuring regular income later in life based on accumulated savings.
As a result, monthly investment plans are ideally suited for retired individuals seeking regular income during their golden years. Now let us take a look at some of the best monthly investment plans currently available in India.
Some of the Best Monthly Investment Plans
Here are some of the best investment schemes you can consider to get a monthly income: -
· Post Office Monthly Income Scheme (POMIS)
Post Office Monthly Investment Scheme (POMIS) is one of the best investment options for regular income offered by India Post. POMIS offers assured returns and the scheme is backed by the Government of India. Under this scheme, you can make an investment of up to Rs. 4.5 lakh in a POMIS account. The tenure of this investment is 5 years and it offers an interest rate of 6.6% p.a. as of Q2 2022.
Being a government-backed scheme, it is one of the safest options to avail of regular income. You can start investing in POMIS with a low minimum investment of Rs. 1500.
· Fixed Deposit Monthly Income Plan
A fixed deposit monthly income plan can be the right option for individuals who want to receive guaranteed regular income on a monthly, quarterly or annual basis. It is a type of term deposit where the interest earned is credited back to the investor’s account periodically i.e. monthly, quarterly or annually.
While returns from this investment are assured, the rate of return can vary based on multiple factors like the bank chosen, age of investor, deposit tenure, etc. Many banks also provide the option of overdraft on these fixed deposits which can provide much-needed access to cash during a financial emergency.
· Senior Citizen Savings Schemes
Senior Citizen Savings Scheme or SCSS was introduced by the government of India to provide regular post-retirement income to individuals above the age of 60 years. An SCSS account can be opened in any of the certified post offices or banks across India. The tenure for this scheme is 5 years which can be further extended by 3 years post-maturity. This investment offers guaranteed returns and is ideal for risk-averse senior citizens and as of Q2 2022, the interest rate of the SCSS scheme is 7.6% p.a., which is among the highest in India.
· Senior Citizen Savings Schemes
Senior Citizen Savings Scheme or SCSS was introduced by the government of India to provide regular post-retirement income to individuals above the age of 60 years. An SCSS account can be opened in any of the certified post offices or banks across India. The tenure for this scheme is 5 years which can be further extended by 3 years post-maturity. This investment offers guaranteed returns and is ideal for risk-averse senior citizens and as of Q2 2022, the interest rate of the SCSS scheme is 7.6% p.a., which is among the highest in India.
Eligible investors can start investing in SCSS with an amount as low as Rs. 1000, and the maximum limit is Rs. 15 lakhs. In addition to being a safe monthly investment plan for senior citizens, it is a long-term savings option to secure post-retirement finances.
· Government Bonds
Government bonds are relatively low-risk investments and are suitable for individuals looking for income over a long-term such as 15 to 20 years. Investing in government bonds along with other investment schemes can be a smart way to ensure a regular flow of income even though unlike other monthly income plans discussed above, bond pay outs usually occurs on a quarterly or bi-annual basis.
Government bonds are issued by the Government of India which results in low risk to the investor’s money. This investment option can be ideal for individuals who fall under the higher income tax bracket of 30% and are looking for a safe & secure monthly investment plan.
Benefits of Investing in a Monthly Investment Plan
Monthly investment plans offer various advantages to investors. Here are some of the key benefits of investing in a monthly investment plan:
· Guaranteed Regular Income
This is the most significant advantage of a monthly investment plan. It is a great incentive for people invest their savings during their working years to financially secure their life after retirement.
· Disciplined Savings
Discipline is the most important aspect when it comes to investing. People usually start investing with enthusiasm but fail to keep it up over time. Instead of investing your money all at once, you can invest smaller amounts every month, to create a large retirement corpus. This is easier to achieve without having to stress your finances.
· Guaranteed Regular Income
This is the most significant advantage of a monthly investment plan. It is a great incentive for people invest their savings during their working years to financially secure their life after retirement.
· Disciplined Savings
Discipline is the most important aspect when it comes to investing. People usually start investing with enthusiasm but fail to keep it up over time. Instead of investing your money all at once, you can invest smaller amounts every month, to create a large retirement corpus. This is easier to achieve without having to stress your finances.
Taxation of Monthly Investment Plans
Different monthly income plans have different taxation rules. These rules are as follows:
Post Office Monthly Income Scheme (POMIS): The monthly income from POMIS is taxed as per the slab rate of the investor under the head “Income from Other Sources”.
Fixed Deposit Monthly Plans: Interest income from this investment is also taxed under the head “Income from Other Sources” according to the slab rate of the investor. Additionally, this income can also attract 10% TDS subject to key terms and conditions.
Senior Citizen Savings Scheme (SCSS): Investments made into a SCSS account are eligible for tax deduction benefit of up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax Act, 1961. The income from SCSS is taxable as per the slab rate of the investor during the applicable financial year.
Government Bonds: Interest earnings from government bonds are subject to same tax rules as interest earned from fixed deposits. Additionally, income from sale of government bonds are subject to capital gains taxation rules. If government bonds are sold within 12 months of purchase, short term capital gains rules are applicable and gains are taxed as per the sab rate of the investor. For government bonds held for over 12 months before being sold, long term capital gains (LTCG) are applicable. LTCG on gains from government bonds is 20% with indexation benefit.
FAQs
1. What is a monthly investment plan?
A monthly investment plan is a type of investment plan that aims to provide regular monthly income to the investor.
2. Are the returns guaranteed for monthly investment plans?
In case of most monthly investment plans, returns are guaranteed. However, the rate of return can vary significantly from one investment to another.
3. What are tax benefits provided under monthly investment plans?
Most monthly investment plans do not offer tax benefits. However, some like the Senior Citizen’s Savings Scheme offer tax deduction on investments of up to Rs. 1.5 lakh u/s 80C of the Income Tax Act.
4. Why should I invest in a monthly investment plan?
A monthly investment plan offers numerous advantages, such as disciplined savings, assured returns and a regular source of income. You should consider investing in these schemes to avail these key advantages.
5. Can I take a loan against a monthly investment plan?
While not all monthly investments plans allow you to take a loan. Fixed Deposit Monthly Income plans do offer this option in many cases. The quantum of loan and applicable interest in such cases tend to vary from bank to another.
Sources:
https://economictimes.indiatimes.com/wealth/invest/earn-6-6-interest-on-post-office-monthly-income-scheme-check-eligibility-taxation-other-details-here/articleshow/90435693.cms
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=62
https://www.rbi.org.in/commonman/English/Scripts/FAQs.aspx?Id=711#1
https://www.hdfcbank.com/personal/resources/learning-centre/save/what-is-fixed-deposit-interest
https://economictimes.indiatimes.com/wealth/tax/rbi-retail-direct-government-bonds-how-will-interest-capital-gains-be-taxed/articleshow/88405373.cms
ARN No: May22/Bg/27A
