New Delhi: Investors seeking monthly returns over long-term returns have several investment options. Here we compare the Post Office Monthly Income Scheme with systematic withdrawal plans offered by mutual funds. Check key features, advantages, and drawbacks, if any, related to both schemes.
Post Office Monthly Income Scheme
Popularly known as POMIS, this scheme provides a steady and guaranteed return on investments. This scheme carries an assurance from the Government of India and is considered completely safe.
Another method that is increasingly being adopted by investors is the Systematic Withdrawal Plan (SWP) in mutual funds.
POMIS interest rate is fixed at 7.4 per cent. The maximum amount that one can invest in the Post Office MIS is Rs 9 lakh per individual. Joint accountholders can invest up to Rs 15 lakh in the scheme.
POMIS calculator
If you invest Rs 9 lakh lump sum in POMIS, you will earn a monthly income of Rs 5,550. Over a 5 year period, this totals up to Rs 3.33 lakh.
On a joint investment of Rs 15 lakh, the approximate interest accrued per month will be Rs 9,250, which will amount to Rs 5.55 lakh in 5 years. At the end of the scheme, the principal invested will remain unchanged at Rs 15 lakh.
What is mutual fund SWP?
Mutual Fund systematic withdrawal plan can be adopted by any investor and can applied irrespective of the nature of funds one invests in – equity-oriented, debt-oriented or hybrid. It enables investors to go for a one-time lump sum investment in an MF scheme and fix an amount that will be withdrawn automatically every month.
SWP is a favourite instrument with senior citizens who use it to generate a monthly pension. The basic concept in SWP is simple: If one can manage to withdraw less than the returns the schemes generate, the size of the corpus will keep appreciating instead of reducing.
SWP calculator
Consider that an investor has invested Rs 15 lakh -– the same amount as POMIS –- in mutual fund schemes. Now, let the MF schemes generate a 12 per cent return which is moderate over the long term. The investment will be held for 5 years, the same tenure for which POMIS works. Also, let’s assume the investor withdraws Rs 9,250 every month via SWP.
The total money withdrawn from this scheme will amount to Rs 5.55 lakh. However, unlike POMIS, after these withdrawals, an amount of approximately Rs 19 lakh will be left in your account. Therefore, SWP might generate better returns if the assumption of 12 per cent holds.
Alternatively, the investor can withdraw more money from the SWP, assuming he/she wants to keep the original corpus to Rs 15 lakh in the MF schemes.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO and Mutual Funds.)
For millions of Indians ensuring monthly cash flow is the central point in financial planning. Post office monthly income schemes and Systematic Withdrawal Plan of mutual funds are popular instruments for it. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
