Top 10 Monthly Income Investment Options in India

Here is a list of 10 leading Monthly Income Investment choice in India:

add-a-subheading-1462186It’s always a great feeling when you are financially Free and don’t have to worry about your monthly expenses. When investing for monthly income, all of us would love to have our principal intact and at the same time get high and guaranteed returns, but that can happen only in a Utopian world.

Let us explore the options available in India that can help you earn regular/monthly income.

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• Post Office Monthly Income Account Scheme

It’s a choice for the investors having a zero risk tolerance and wants to earn a steady income. The interest is paid monthly at the rate of 7.8% calculated annually. This interest rate is effective from April 01, 2016. There is a bonus of 5% on the principal amount for the accounts opened between Dec 08, 2007 and Nov 30, 2011, at the time of maturity. However, there is no bonus on the accounts initiated on or after Dec 01, 2011.

The scheme gets matured after five years and can be prematurely encashed only after one year of deposit. If the scheme is withdrawn after the first year of deposit but before the third year of deposit, there will be a deduction of 2% from the deposit. In case, the scheme is withdrawn after three years of deposit and before the actual maturity period i.e. five years, there is a deduction of 1% from the deposit amount.

Also read: Post Office Small Savings Schemes-interest rates 2016-17

• Bank Fixed Deposit

Bank deposits are one of the most favorite options for Indians. If you want to be on a safer side and don’t want to risk your money, then this is for you. You can invest your money in fixed deposits offered by PSU as well as private banks for a specified duration and earn a regular income in the form of interest. Bank FDs allows you to deposit a lump sum amount for a fixed term and earn interest on your deposits. The deposit period may vary from 7 days to 10 years. Also, bank deposits are insured by the the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to an amount of Rs. 1 lakh against default by banks.

Interest on the FDs is calculated on the monthly/quarterly basis and is paid on monthly/quarterly/annual basis. The interest paid on FDs varies based on the investment tenure, the amount deposited and the Banks. Senior citizens get a higher interest rate on their deposits. Bank FDs are a more suitable choice for the investors falling in the low tax brackets or zero tax brackets.

There are Co-operative Banks which gives you higher interest, but beware your principle amount could be at peril.

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• Long-term Government Bond

You can choose to go with this option as it is one of the safest bet with minimal risk. The interest is paid on a half-yearly or annual basis. You can sell these bonds any time as they are traded on the secondary market. However, they come along with a tenure of 10, 15 or 20 years. So, if you are ready to lock-in your money for a longer tenure, you can go with it.

• Senior Citizen Savings Scheme

This is a special scheme offered by post offices in India for the senior citizens i.e. people of the age of 60 or above. It is also one of the risk-free instruments to go along with.

If you have retired on super annuation or under VRS and your age is above 55 years but below 60 years, you can also open an account under this scheme provided; you open the account within one month from the date of the receipt of the retirement benefit, and the deposit amount should not exceed the amount received through the retirement benefit.

The interest under this scheme is paid on a quarterly basis at the rate of 8.6% calculated on the annual basis. This interest rate is effective from April 01, 2016.

• Corporate Deposit

A lot of corporates offer deposit schemes paying a higher rate of interest based on their ratings and the deposit tenure. Corporate deposits are provided by non-banking financial companies or housing finance companies. Some of the companies providing corporate FDs include PNB Housing Finance Ltd, HUDCO Ltd, Mahindra & Mahindra Financial Services Ltd, and National Housing Bank.

By investing in such deposits, you can earn interest on a quarterly or half-yearly basis. They also provide an additional interest  rate of 0.25% – 0.5% for the senior citizens. However, this instrument comes with the risk of default from companies or delay in the payments. Hence, it’s apt not to get carried away with the higher interest rates offered by the companies and invest in a company with a credit rating of at least AA or AAA. Also, don’t put your money into one deposit; instead distribute your money into deposits from multiple companies to diversify the risk.

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• Annuity

Insurance companies offer annuity plans in India. It provides a regular income stream with minimal risk and can be used as a retirement strategy. Under this option, you make a lump sum investment and earn income through monthly/quarterly/annually/lump sum payment.

The size of your annuity depends on various factors that also include the duration of your payment period. Annuity plans are classified into two: Deferred and Immediate. Under deferred annuity plan, your money gets invested for the tenure chosen by you, and you start earning income at a later date. On the other hand, in immediate annuity plan, you start getting payments from the beginning month itself immediately after making the lump sum payment.

Annuities are further classified into fixed or variable within deferred and immediate annuity plans. There are multiple payout options available under annuity plans like payment for a fixed period, payment for a lifetime, joint and survivor annuity payment, etc.

However, investment in annuity comes with charges such as commission, surrender charges, and annual fees. Also, annuity does not provide any tax benefit to the policyholders and the amount received as annuity is taxable under “Income From Other Sources” head.

S.No Investment Product Min Investment Req. Maximum investment Amount Investment Horizon Eligibility Criteria Rate of return Taxation
1 Post Office Monthly Income Account 1,000 Individual Account- 9 Lac
Joint Account- 15 Lac
5 Years Residential Individuals, On behalf of Minor aged above 10 years 7.40% Interest Income Taxable as per slab
2 Bank Fixed Deposit 1,000 No maximum limit 7 days- 10 years Residential individuals, HUF with Bank Account 2.8%-7.35% Interest Income Taxable as per slab
3 Long-Term Government Bond 1,000 No maximum limit 5-40 years Residential Individuals, NRIs, minor with legal guardians 5.75-7.01% Interest Income & STCG Taxable as per slab, LTCG taxable @20% with indexation
4 Senior Citizen Saving Scheme 1,000 30 Lacs 5 years + extension available in 3 years patches Age 60 or above 8.20% Interest Income Taxable as per slab
5 Corporate Deposit 20,000 No maximum limit Minimum 1 year Residential Individuals, NRIs, minor with legal guardians 7.5%-7.75% Interest Income Taxable as per slab

 

S.No Investment Product Min Investment Req. Maximum investment Amount Investment Horizon Eligibility Criteria Rate of return Taxation
6 Annuity 1000-25000 No maximum limit 5,10,15,20 years Residential Individuals, NRIs, minor with legal guardians 6.5%-7% Interest Income Taxable as per slab
7 Mutual Fund Monthly Income Plan No minimum limit No maximum limit No lock-in period Residential Individuals, NRIs, minor with legal guardians Flexible returns As per capital gain of mutual fund type
8 Dividend From Mutual Funds No minimum limit No maximum limit No lock-in period Residential Individuals, NRIs, minor with legal guardians Flexible returns As per tax slab
9 Dividend From Equity Shares No minimum limit No maximum limit No lock-in period Residential Individuals, NRIs, minor with legal guardians Flexible returns As per tax slab
10 Rent From Real Estate NA NA NA Resident & NRI NA 30% deduction u/s 24, 70% income taxed as per slab

 

• Mutual Fund Monthly Income Plan

If you are looking for an option that can give you a higher return than the Fixed deposits, ability to beat inflation, then Mutual Fund-MIPs are an option. However, you should be ready to take a moderate risk, as the investments in MIPs will be distributed in the ratios of 20:80 or 30:70 in equity securities like stocks or shares and debt instruments like treasury bills, certificate of deposits, commercial papers, etc. respectively. It is primarily a debt-oriented scheme. The ideal tenure for the investment in Monthly Income Plans is between 2 to 3 years.

You can opt for the dividend-payout option to aim for regular income. By choosing this option, you will receive the income in the form of dividends on monthly/quarterly/half-yearly/annual basis. the company first deducts the Dividend Distribution Tax (DDT) at the rate of 28.33% on the dividends before paying it to you.

One of the disadvantages of MIPs is that there is no certainty of the company paying regular dividends, as the dividends are paid only on the profits earned and not on the capital invested; reason being it has a equity component.

• Dividend from Mutual Funds

You can choose to go with this option if you are ready to take a risk on your investment. Mutual funds can be broadly categorised as equity and debt.

There are a number of mutual funds which come along with dividend payout option. The dividends on mutual funds are paid on an annual basis and not on monthly basis. However, if you have invested in multiple funds and your portfolio is diversified, the possibility of earning regular income on dividends increases.

The dividends payable on equity mutual funds are tax-free. On the other hand, the dividends on debt mutual funds are paid after the deduction of the Dividend Distribution Tax at the rate of 28.33% including surcharge and cess.

The drawback in this option is that the dividends are paid only on the profits earned; as a result, the possibility of companies paying regular dividends decreases.

Also read: How to select a good Mutual Fund that suits you best

• Dividend from Equity Shares

This option comes with a high degree of risk. Along with the appreciation on your investment in the long term you can also earn regular income. You need to build a portfolio by diversifying into multiple stocks which has high dividend payout ratio. Dividends are usually paid on an annual basis.

However, the possibility of companies paying regular dividends is less as the dividends are paid on the profits earned and not on the capital.

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• Rent from Real Estate

Opting for this option can help you to earn monthly income over a period. It could be through investing in a commercial property with high rental yield, typically a office/warehouse/shop space.

Advantages associated with this option are:

 You can earn monthly income on a regular basis.
 Increase in rent over a period will help you earn inflation-adjusted returns  .

Disadvantages under this option include:

 As its a unorganised sector, acquiring/managing a property is a difficult proposition.
 Liquidity is a huge concern when it comes to real estate investments.

Final Words

All the options mentioned above come along with its own pros and cons. You should go along with the option that suits your risk appetite and are in line with your financial goals.

Disclaimer:

This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.

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4 thoughts on “Top 10 Monthly Income Investment Options in India”

  1. Dear Sir
    if I have a corpus of 70 lakhs as my life savings & I need a monthly income from it to live my life with family, what would be the safest yet best instrument(s) to park my money in? kindly give me a detailed guide as to how should I go abt it.
    thanks a lot for your valuable advise.
    Nishanth

    1. Dear Nishanth
      There is nothing like SAFE & BEST monthly income options, if you want more returns you have to take more risk however here are a couple of options that might suit you…
      Option 1 :

      Post office MIS/Monthly Income Plan(MIP) from mutual funds/Tax free Bonds/NCDs/Corporate FDs/Bank FDs

      Returns : Inflation adjusted returns not possible(except in case of MIPs which will have a small percentage of equity)

      Risk : Low to moderate

      Liquidity : Moderate to High

      Option 2 :

      Lend your money on a peer to peer lending platform.

      Returns : Inflation adjusted & more

      Risk : Very High

      Liquidity : you can define the tenure

      hope this helps

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