Ensuring a steady flow of money every month is one of the basic elements of financial planning for the common man in India. Monthly income schemes, call them by any other name, are a great source ensuring a steady source of predictable cash flow.
There are at least three investment avenues that offer such steady money every month.
These three sources are the post office monthly income schemes, monthly income plans from mutual funds and that from insurance policies.
While there is basic similarity between these to the extent that all three provide monthly income, there are some points of difference as well. It is worthy for anyone planning such an option to take note.
Rate of returns
The post office monthly income scheme popularly referred to as POMIS earns one a steady interest at 7.4% of the invested amount.
Mutual fund MIS invest the funds in 4:1 ratio in equity and debt instruments to generate returns.
Insurance plans provide annuities to the insured person.
Maximum investment
There is a limit of Rs 9 lakh for a single hilder account. If the account is in the name of two holders, the ceiling is raised to Rs 15 lakh.
There are no limits of investment in the MIS offered by mutual fund and insurnace companies.
The guarantee angle
POMIS provides a guaranteed return while for mutual fund MIS the monthly income depends upon the returns of the period and might vary with the market.
The income is also fixed for MIS in the insurance sector.
TDS angle
No tax is deducted at the source (TDS) for POMIS, though the income is taxable depending upon the slab of the taxpayer.
In the insurance plans, too, TDS is not applicable while TDS is imposed on the mutual fund MIS.
Risks involved
POMIS is perfect for those trying to avoid any kind of risk since it is guaranteed by the Union government. Therefore, it is a great favourite with the elderly and those who are looking for avenues to park retirement funds.
On the other hand, the MF MIS offer some sort of a compromise between risk and certainty.
Insurance provides both the security of financial cover in the case of any eventuality and a monthly income.
Early withdrawal
Early withdrawal is not allowed within one year of beginning but between the first year and maturity (5 years), one can withdraw with a penal charge of 1% to 2%.
Mutual fund MIS usually charge about 1% exit load if redeemed within the first year. Insurance MIS policies, too, have surrender charges that can vary between insuring companies.
Monthly Income Schemes enjoy huge popularity in India. The reason is simple: they mimic a monthly pension. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
