Financial security is one of our top priority in life. We work daily to get money and to fulfill our responsibilities. Many of us wants to start own business and be proud of that. But business risk and irregular income stops us. We continue with our 10 hrs. job as it provides fixed monthly income at the end of month.
But do you know there are many other ways to generate monthly income apart from starting a business. In this article, we’ll discuss such ways in details.
Monthly Income Plans from Mutual Funds
Monthly Income Plans (MIP) in mutual funds comes under Hybrid category of mutual funds. Generally, such schemes invest little portion of total asset in equities to boost returns over a period of time. It ranges from 5% – 25% of total AUM. Rest of the portion goes to debt investments.
You can choose dividend payout option while investing in MIP and the dividend will be directly credited to your bank account every month. But remember, here the returns and dividend declaration date is not fixed by the company. So, it might happens that due to steep fall in stock market, the company may not pay any dividend for 2-3 months or even more. So, be ready for that.
Since, total invested is divided into equity and debt, the return can not be judged as guaranteed in any way. But it has been seen in long term, such schemes manage to beat inflation and better than many other options.
Generally, these scheme charge 1% exit load if you exit before 1 year of time of investment.
There is no limit of max. amount one can invest here.
Some of the good returns, as per past performance, comes from Reliance Mutual Fund, Birla SL mutual fund and HDFC Mutual Fund house. Contact and discuss with your AMFI certified mutual fund distributor for details, risk factors and tax implications.
Monthly Income Plan from Indian Post Office
Indian Post office offers monthly income plan too, popularly called as Monthly Income Scheme (MIS). One can invest max. of 4.5 lacs in one account or 9 lacs, if you invest via joint account. The tenure is of 5 years and the rate of interest is fixed for this period. Currently, the rate is 8.2%p.a., which is paid monthly
Recently, post office has started credit interest amount directly to investor’s bank account. Check out with your post office branch for such facility.
If you prematurely encash your investments in MIS after 1 year but before 3 years of investment, you have to pay 2% exit load and 1% if you exit after 3 years i.e. deduction from total amount invested.
Here the total interest earned will be added to your taxable income and you’ve to pay income tax as per prevailing rates.
Monthly Income from Bank Fixed Deposits
Every bank offers fixed deposit scheme. But very few people know that bank offers monthly income scheme also in the form of fixed deposit (FD).
In normal FD, generally the interest portion is given at the maturity of FD. But you can choose to get that interest portion every month to your bank account. This way you can start your monthly and regular income.
The rate of interest changes from time to time. But, unlike MIP of mutual funds, here you’ll be aware of net interest % and amount.
Bank will deduct TDS as per income tax rules.
One can prematurely withdraw the principal amount. So, no problem of liquidity. But in that case, the investor get lower rate of interest.
Monthly Income Plan from Insurance Policies
Life Insurance companies offer immediate pension (annuity) plan. Here you have to invest lump-sum amount and the company will pay you fixed amount from next month, called annuity. Generally such plan offers verities of investment options, which varies from annuity till 80 years of age, annuity till death, annuity till fixed amount and alike.
Without going into details of options, I would like to stress on 3 important points here:
The most benefic point in annuity plan is that the company promises to you pay fixed annuity amount till your death. So, no more fear of monthly income to cover your expenses. The rate of interest is also fixed throughout the tenure. You can plan your monthly expenditure in that way.
Secondly, there is no liquidity here. No matter what the emergency is, you can not withdraw your principal amount. No facility of loan too. The principal amount will be given to the nominee after your death.
Thirdly, the rate of interest is much lower than even bank FD. E.g., currently, senior citizen can get approx 10% p.a. from any bank in India, but annuity rate is less than even 7% p.a.
The companies give justification by saying that since it’s a long term contract and there is a risk of interest cycle, the company plays safe by offering lower interest. They may be right. But the customer suffers a lot here.
Which is best MIP?
Now, here you need to have clear objective too. If you want 100% liquidity at any time, go for bank FD’s as other schemes either does not allow to withdraw the principal amount or allows after deductions.
If you do not want any risk and want 100% safety of your money, go with post office MIS or bank FD.
If you can take little risk and planning to beat inflation in long term, go for MIP from mutual funds.
If you do not believe any of your family member for financial security, invest in annuity plan of life insurance companies. You and/or your spouse wi’ll get fixed amount of money every month till death.
Got any doubts, please feel free to ask under comments section below.