Monthly Income Schemes in India

When we talk about financial planning, especially for the retirement years, the one basic requirement is monthly income to meet the regular life expenses. To address this, comes into picture the Monthly Income Scheme (MIS), a financial strategy offering a steady income stream for investors.

In this comprehensive article, we discuss about all kinds of MIS, exploring the benefits, risks and suitability for diverse financial goals. Knowing these nuances is crucial for taking well informed decisions and creating a financial planning with optimum returns.

The Monthly Income Scheme (MIS) includes various investment options designed to provide a regular monthly income stream for investors, over a certain period. While only the Post Office MIS is commonly known, technically these schemes extend to corporate and banking sectors as well.

MIS is suitable for risk averse investors who want to invest a certain amount and earn guaranteed income at a certain interest rate every month.

There are different kinds of monthly income schemes depending on the provider. These schemes cater to diverse risk appetites, allowing investors to tailor their portfolios as per their preferences.

1. Fixed Deposit MIS

A traditional monthly income scheme where investors deposit a lump sum amount for a fixed tenure, earning monthly interest payments. Essentially, it’s the traditional fixed deposit, created in monthly interest payout mode.

Features and Benefits of Fixed Deposit MIS:

• No Limit on Income: A bank FD MIS has no upper limit on the deposit amount. Since you receive your monthly income in proportion to the deposit amount, there is no limit on your income too.
  
• Long Tenure: Bank FDs can be made for tenure as long as 10 years. A longer tenure means a substantial period during which you will receive your income and would be worry free.
  
• No Processing Fees: Compared to a few other income schemes, bank FD MIS have no processing fees.
  
• Loan: These MIS offer loan facility. The investor can borrow a loan from the bank with their FD as a collateral.
  
• Liquidity: FD MIS are highly liquid as the investor can withdraw whole or partial amount as per their requirement. However, there might be some penalty on premature withdrawal. Usually, the penalty is 0.5% to 1% of the interest earned.
  
• Preferential Rates for Senior Citizens: Senior citizens enjoy preferential rates on fixed deposits, thus adding to their retirement income and savings.
  
• Taxation: The interest earned on fixed deposits is added to the taxable income and is fully taxable as per an individual’s tax slab. However, some fixed deposits, known as Tax Saving FDs, have a lock in period of 5 years and the investment in these FDs can be claimed under section 80C, up to the limit of Rs. 1.5 lakh.
  
•  Eligibility: FD MIS can be opened by any resident/non-resident Indian who can be individual, senior citizens, minor, businesses, HUFs or trusts.

2. Post Office MIS

Operated by India Post and backed by the Government of India, this scheme allows individuals to invest a lump sum and receive fixed monthly returns.

Features and Benefits of Post Office MIS:

• Maturity Period: The maturity period of POMIS is 5 years (60 months) from the account opening date. (effective Dec 1, 2011)
• Deposit Limits: The minimum amount that can be deposited in POMIS is Rs.1000 and the maximum is as follows:
  • Single Account: Rs. 9 Lakh
  • Joint Account: Rs. 15 Lakh
  • Minor Account: Rs. 3 Lakh

• Interest Accumulation: POMIS can continue to accumulate interest for up to 2 years after the maturity if the proceeds are not withdrawn by the investor. The standard post office savings account rate would be applicable here.
• Minor Account: POMIS can be opened for children above 10 years, who would be required to convert it into a major account once they are of 18 years of age.
• Interest Rate: The interest rate on POMIS is 7.4% per annum payable monthly (from 01.10.2023 as per India Post MIS Schemes). This is comparatively higher than other monthly schemes and this rate is revised by the government every quarter.
• Premature Withdrawal: Premature withdrawal is allowed but a penalty of 2% on deposit is applicable if withdrawn between 1-3 years and 1% if withdrawn between 3-5 years.
  
• Eligibility: Any resident Indian above 18 years can open a post office MIS account. It is not available for non-resident Indians. For people between 10-18 years of age, the account needs to be a minor account operated by a guardian.

3. Monthly Income Plan

Monthly Income Plans (MIPs) are mutual fund strategies designed to provide investors with a regular stream of income. These plans typically invest in a mix of debt and equity instruments, offering cash flows and capital preservation.

The MIPs aim to generate a steady income through dividend and interest, by investing in low-risk securities. Thus, it is more suited for investors with low-risk appetite who are looking for stable income rather than capital appreciation.

Features and Benefits of Monthly Income Plan:

• Investment Strategy: MIP consists of 15%-25% equity stocks and the rest in debt funds, thus combining the profitability of equity with stability of debt.
• Investment Options: MIPs provide the option of growth and income. While income option serves the purpose of regular income and pays out dividend on regular basis, the growth option works on reinvestment basis.
• Systematic Withdrawal Plan: With a SWP in place, you can withdraw a certain amount at regular intervals. You can choose to withdraw a fixed amount or just the returns, thus providing a systematic income stream.
  
• Liquidity: There is no lock in period in these MIPs and hence offer more liquidity than any other schemes.
• Taxation: The mutual funds-based MIP are taxed as per the debt mutual funds taxation. In case of short-term capital gains (STCG), the returns are added to the investor’s income and taxed as per their tax slab. In case of long-term capital gains (LTCG), that apply if the funds are liquidated after 3 years, a 20% tax is applied.
• Eligibility: Any individuals above 18 years and with valid KYC proofs can invest in mutual fund-based scheme.